(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000201670001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 16
• Document Creation Date: January 12, 2017
• Document Release Date: February 23, 2011
• Sequence Number: 1
• Publication Date: November 20, 1986
• Content Type: MEMO

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Central Intelligence Agency
Director of Global Issues
t--IL C- 2bX1
DATE ,Z 0 Fa-
DOC NO GZ /1 S 9
OIR 3
P $ PD
11NOVMG
SUBJECT: New Third World Agricultural Competitors:
The Growing Challenge (An Update)
1. The attached memorandum updates a recent research paper
on the same issue. Preliminary trade data for 1986/87 and
additional intelligence reporting indicate that the Third World
agricultural challenge identified in that paper is continuing to
increase, stimulated by increased use of market incentives,
application of advanced a rotechnolo , and natural comparative
advanta es.
2. This memorandum was prepared by
Division, Office of Global Issues.
3. Your comments and suggestions on this memorandum are
welcome
GI M 86-20259, November 1986
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SUBJECT: New Third World Agricultural Competitors: The Growing
r A
TT-A- t
Challen
n
-
ge
OGI/ECD/T
k18NOV86)
Distribution:
1 - Alan Tracy, White House
1 - Alexander Platt, NSC
1 - Stephen Danzansky, NSC
1 - Dave Laux, NSC
1 - Geza Feketekty, USTR
1 - Suzanne Early, USTR
1 - Clayton Yeutter, USTR
1 - Robert Thompson, USDA
1 - Richard Lyng, USDA
1 - Daniel G. Amstutz, USDA
1 - Byron Jackson, Commerce
1 - H. P. Goldfield, Commerce
1 - Mike Kelley, Commerce
1 - Hazen Gale, Treasury
3 - Douglas Mulholland, Treasury
1 - David Mulford, Treasury
1 - Robert Cornell, Treasury
1 - Terence Byrne, State
1 - Marshall Casse, State
1 - Douglas McMinn, State
1 - W. Allen Wallis, State
1 - Randall Davis, OMB
1 - Gordon Rausser, CEA
1 - D/ALA
1 - D/OEA
1 - D/OIA
1 - D/NESA
1 - D/SOVA
1 - SA/DDCI
1 - Exec Dir
1 - DDI
1 - DDI/PES
1 - NIO/ECON
1 - CPAS/ISS
1 - D/OGI, DD/OGI
3 - OGI/EXS/PG
6 - CPAS/IMC/CB
1 - Ch/OGI/ECD
1 - Ch/OGI/ECD/T
1 - Ch/OGI/ECD/ES
5 - OGI/ECD/T
25X1
25X1
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Central Intelligence Agency
New Third World Agricultural Com etitors: The
Growing Challenge (An Update)
Summary
Competition in agricultural trade will accelerate in coming
years. Evidence acquired since our report in September on new
Third World agricultural exporters strengthens our conclusion
that structural change in the form of advances in technology and
shifts by LDC governments toward more market-oriented farm
policies will substantially expand Third World competition with
the United States in key product areas. The market position of
current major LDC competitors such as Brazil, Thailand, and
Malaysia remains strong, and new data show continued efforts by
other LDCs to boost their agricultural export capacity. Despite
depressed global price prospects, LDCs continue to encourage ag
production by reforming their economies in order to garner scarce
foreign exchange to service debts, boost domestic economic
activity and self-sufficiency, and restructure inefficient
economic sectors. These changes should brighten overall economic
prospects in many LDCs while further depressing global commodity
This memorandum was prepared byl (Trade Issues Branch, 25X1
Office of Global Issues. This analysis is based on information
received as of 4 November 1986. Comments and queries are
welcomed 25X1
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NEW THIRD WORLD AGRICULTURAL COMPETITORS: THE GROWING CHALLENGE (An Update)
Introduction
we identified structural changes in the agricultura
sectors of many LDCs that favor market-responsiveness and comparative
advantage. These advances have taken the form of shifts to more
market-oriented agricultural policies and progress in agrotechnology. The
changes have been motivated by several factors facing LDCs:
o The necessity to improve balance of payments that depend heavily on
foreign exchange earned by agriculture.
a The fact that agriculture still accounts for a large share of domestic
incomes and employment in most developing countries.
o IMF-mandated adoption by debt-troubled LDCs of growth-oriented macro-
economic and structural reforms as a prerequisite for reducing debt
servicing burdens over time.
o A growing recognition by many LDC governments that stronger economic
growth in general requires market-oriented reforms to cut inflation,
reverse capital flight, and restructure inefficient economic sectors.
GI M 8620259
November 1986
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o Reaction to the heavy structural burden of inefficient or highly-
subsidized public enterprises.
Where Key LDCs Stand
In line with these structural changes, the new and emerging agricultural
competitors we have identified have continued previous reforms, and many have
made additional policy changes to encourage export development. These
changes have allowed the gains for the leading
LDC exporters to continue unabated:
o Brazilian earnings from soybean meal exports for January through September
1986 topped $1 billion--20 percent above 1985 levels, according to US
Embassy reporting. Orange juice export earnings are also above 1986
levels.
o Malaysian palm oil production is expected by trade sources to reach 5.0
million tons in 1987--6 percent above this year (see Table 1)--while
Indonesian output is predicted to jump 25 percent. Production should
continue to expand in both countries as government and private estates
improve their yields and expand the land area under cultivation. Kuala
Lumpur officials predict annual Malaysian palm oil production will reach
9 million tons by the year 2000.
o Thai rice exports are now predicted by USDA to reach a near-record 4.3
million tons in calendar-year 1987--8 percent above 1985 levels.
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Table 1
New Third Wbrld Agricultural Carpetitors
Production and Exports of Selected Canmodities
(in 1000 Metric Tons)
.1975/76
1985/86
1986/87a
Brazil
Soybean
Production
9,892
13,400
16,500
Exports
3,516
1,300
2,000
Soybean Meal
Exports
7,450
Soybean Oil
Exports
Frozen Concentrated
Orange Juice
Production
(F(DJ)
211
771
844
Exports
181
730
725
Poultry
Production
569
1,590
1,800
Exports
71
251
274
Malaysia
Palm Oil
Production
1,258
4,730
5,000
Exports
1,160
4,108
4,325
Cocoa
Production
15
120
160
Exports
14
110
150
Thailand
Rice (milled)
Production
10,098
12,705
12,510
Exports
933
4,200
4,300
Rubber
Production
355
720
780
Exports
342
648
702
aForecast
Source: USDb/FAS and Industry Reports
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Similarly, Thailand's rubber production is soaring, and exports are
expected to reach 700,000 tons this marketing year and 964,000 tons by the
year 2000, according to US Embassy reports.
The more recently emerging exporters are also faring well, spurred largely
by additional inputs and opportune tax reforms:
o India is attempting to market 1 million tons of surplus rice and 2 million
tons of wheat, according to Embassy reports. India's good agricultural
performance is attributed to the addition of over 2 million hectares of
irrigated land annually for the past 5 years, a 70 percent increase in
fertilizer consumption in 1986 over 1980 levels, and increased
availability of loans to farmers.
o Indonesian Agriculture Minister Affandi hopes to boost 1987 rice
production another 2 percent over this year's harvest level of 26.6
million tons, according to press reports.
o Argentina has the potential to increase its grain and soybean exports 40
percent by 1990, according to USDA. Sales could surge further if the
Alfonsin government eliminates taxes on agricultural exports and spends
money improving the marketing system.
Even in Africa, where we believe agricultural productivity generally will
remain low for the forseeable future, several countries have achieved
considerable gains:
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o Zambia has produced bumper corn crops this year and is fast approaching
self-sufficiency in basic foods. Vast tracts of unused land, plenty of
water for irrigation, and abundant manpower offer promise for the future,
and there is increasing interest in exporting tobacco, coffee, and cotton.
According to press reports, coffee exports--only 600 tons in 1986--may
jump to 6000 tons by 1990.
o Kenya will have a second consecutive record grain harvest in the 1986/87
crop year--mostly corn and wheat--according to Embassy officials. This
is due largely to good seed supplies, excellent producer price incentives,
and favorable weather.
o Zimbabwean exports of major farm products--corn, cotton, and tobacco--
jumped 25 percent above the previous five-year average to 1.8 million tons
in 1986, though transport problems may disrupt future exports because of
South African retaliation against Zimbabwean or Western economic
sanctions. The key to Zimbabwe's agricultural success has been a shift
by government extension services to focusing on small, black-owned farms.
Approximately 2000 government agents now provide information on pesticide
and fertilizer application as well as hybrid seed development.
Government-Backed Incentives
Appropriate producer incentives have given a strong boost--in most
cases--to export advances. Many of the successful LDC exporters are
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continuing to curtail or eliminate subsidies on farm inputs, reduce state
intervention in marketing, and improve prices for farm products:
o Brazil's new economic plan calls for investment in infrastructure
including rail expansion, port improvements, and a near-doubling of
irrigated hectarage to 2.8 million by 1989. While the major emphasis of
the agricultural package is to increase crop production for domestic use,
this newly-productive land has the potential to increase grain and soybean
production by over 7 million tons annually--and boost export supplies as
well.
o Malaysian Finance Minister Daim intends to boost exports further through a
planned reduction in crude palm oil export duties by 20 percent to a
maximum rate of 30 percent, according to Embassy reports. In addition,
the export refinancing scheme will be extended to rubber, palm oil, and
palm kernel oil exports, and the period of financing will be extended from
90 to 180 days.
o Thailand has recently built a bridge and several access roads to link the
mainland with two rubber-producing islands--the first of three major
infrastructure projects underway. The new span will provide the main
rubber center of Hat Yai with easy access to major ports. Still to be
completed are deep-water ports in Songhla and Phuket. According to
Embassy reporting, the new Songkhla facility will boost Thai rubber
exports and stimulate regional growth.
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Similarly, newly emerging exporters are reaping the benefits of reduced
state intervention, improved pricing policies, and infrastructure development:
o Indonesian palm oil exporters should benefit from the recent devaluation
of the rupiah as black market activity diminishes. According to local
exporters, the export price for crude palm oil has already risen to $.22
per kilo, up from $.17 before the devaluation.
o Indian deregulation of markets and unrestricted access by millers to wheat
supplies will accelerate expansion of the flour milling industry,
and provide new opportunities for US
exports of processing technology and equipment.
o Philippine leaders are planning major infrastructure developments,
including road building and irrigation improvement. Farm sector growth
will eventually be promoted through abolishing agricultural industry
monopolies, establishing a flexible exchange rate policy, and
rehabilitating the rural banking system. In addition, plans for selective
price supports and crop insurance are designed to promote agricultural
investment.
o Zimbabwean producer prices for corn--$104 per ton--have been so successful
that the country now faces storage problems for its 2 million ton
surplus and is aggressively seeking export markets
o Gambia has steadily increased producer prices for groundnuts, cotton, and
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rice since 1982. In addition, the fertilizer monopoly has been abolished
and cereal crop marketing is now in the hands of private traders.
o Zambia has decontrolled the producer price of corn for the 1986/87
marketing year and allowed farmers to sell directly to millers and food
processors instead of state buying agencies, leaving the inefficient
parastatal NAMBOARD the buyer of last resort.
o Pakistan has been able to sell its entire cotton crop, the first time this
has happened in recent years. Through competitive pricing and quality
improvements, the Pakistani Cotton Export Corporation sold 3 million bales
(about 700,000 metric tons)--largely to Taiwan, South Korea, and Japan.
o Colombia, though not a major exporter, has reduced government interference
in its import, export, and foreign exchange systems and has implemented
more market-sensitive agricultural policies, according to US Embassy
reporting.
Technology
LDC policy reforms in the farm sector also have been augmented in many
cases by the expanded use of agrotechnology. These efforts suggest further
gains in farm productivity in coming years as LDC expenditures on research and
agricultural extension programs are increased:
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o Brazilian researchers are developing viral-based insecticides for sugar
cane and soybeans that can control pests more cheaply and efficiently
than chemical pesticides. Another private research firm is spending
$4 million on a genetic engineering project to improve yields and
quality of various foodstuffs, according to Embassy reports.
o New hybrid rice varieties developed by the International Rice Research
Institute (IRRI) have performed well on irrigated land in South Korea,
Malaysia, Philippines, Indonesia, Sri Lanka, Pakistan, and the Punjab in
India. Experts estimate that rice yields could be improved another
80 percent by increasing the total dry matter of the plant through
genetic engineering to allow the plant to convert sunlight into carbo-
hydrates more efficiently.
o Argentina has used new corn varieties that resist cool weather and
mature three weeks earlier than conventional hybrids to begin planting
corn further South, according to press reports.
o Sudan's new hybrid sorghum strain which is pest and drought resistant has
contributed to grain surpluses in 1986. Improved maize varieties,
combined with improved agricultural policies, have contributed to grain
surpluses in Kenya. Zimbabwe, and Malawi.
o Bangladesh now grows over 200,000 hectares of wheat--ten times the
acreage harvested before the advent of modern high-yielding varieties,
according to press reports.
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o Turkey--which increased farm productivity by one-third between 1970 and
1982--is building three new dams in the upper Euphrates Valley to
establish irrigation systems that will add over 8 million hectares to the
cropland base, according to State Department analysis.
Implications
The rapid growth of LDC agricultural exports that stems from structural
reforms and wider use of technology presents both opportunities and obstacles
for the United States. On the positive side, rapid agricultural growth in
LDCs will create future markets for US exports:
o Pakistan, for example, is expected to import 50,000 tractors and other
farm implements in 1987 and order significantly more combines and food
processing and packaging machinery over the next few years, according to
State reporting.
o Malaysian Primary Industries Minister Leong intends to purchase a US palm
oil processing plant next year in order to further penetrate the US
market, according to State reports.
o Taiwan and Korea are likely to be two additional important growth markets
for US agricultural inputs as they expand their agriculture sectors.
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Added prosperity from farm sector growth in some LDCs may also generate
raw commodity sales from the United States. In Brazil, despite expectations
of a record 5 million ton wheat crop, 1987 wheat imports are estimated at a
near-record 4 million tons--nearly 1.5 million of which will likely come from
the United States--largely because of increased demand in the wake of consumer
price freezes and relaxation of wage controls. More generally, if glutted
agricultural export markets persist, more LDCs--following the lead of the
versatile, broader-based economies of Brazil, Malaysia, and Thailand--will
probably attempt to export higher value-added commodity-based consumer goods
such as shoes and textiles, which in some cases could create new US
opportunities for equipment sales and increased investment.
The growing strength of LDC agricultural exporters may also support some
US objectives in the upcoming Uruguay Round of GATT negotiations. The Cairns
group of 14 LDC and developed-country agricultural exporters--led by Australia
and including several of the new agricultural competitors such as Thailand,
Malaysia, and Brazil--will side with the United States in pushing for EC
agricultural reforms. They will primarily be looking for a reduction of
agricultural subsidies and for freer access for their burgeoning exports.
On the negative side, the stronger position of LDC agricultural exporters
poses a range of problems for the United States. Most important, as we noted
in our earlier research paper, an already embattled US farm sector will face
intense competition from LDCs for shrinking market shares (see Figure 1). In
25X1
25X1
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Figure 2
Export Market Share in Selected Commodities
Other 4.6
Argentina 4.3
Australia 11.8
China 0.5
Canada 5.7
Argentina
Soybeans and
products
China 10.9 China 7.3 ------ /
Burma 4.9
Pakistan 9.5 Pakistan 8.1
China 0.6 Other 5.0
Other 1.9 China 3.0
EC 11.1
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addition, expanding exports are likely to exacerbate already-strong trade
tensions among LDCs that are US allies. Existing US bilateral trade disputes
will become more contentious as the agriculture arena becomes crowded with
players and burdened with surpluses.
Moreover, as LDC agricultural exporters continue to increase their share
of world markets, the United States will bear the rapidly escalating cost of
maintaining the US farm economy at its current size. Most notably, because of
the low production costs and natural competitive advantages enjoyed by Brazil
and Argentina, lower US export prices will be needed before South American
farmers will scale-back their production and exports of grain and oilseeds.
As the new agricultural competitors expand farm production for self-
sufficiency and export earnings, there will be increasing instability in
commodity markets and resulting opportunities for Soviet manipulation. For
example, Moscow--one of the world's largest commodity importers--may become
more sophisticated in using grain, sugar, and other commodity purchases from
debt-strapped LDCs such as Argentina to strengthen economic and political ties
with these countries. Moreover, as the markets become increasingly glutted,
the resulting lower prices will reduce Moscow's cost of exercising economic
leverage for political purposes.
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