Summary
In 1950/51 special problems arose within the field of agricultural production and food supply, which may become more acute in the near future.
Although production was higher than in 1949/50 food supplies were far from being satisfactorily distributed. Bad harvests in India and Yugoslavia showed again in how short a time millions of people can be brought to the brink of starvation. Production of fibers declined, particularly as a result of reduced cotton crops in the United States and Egypt. This situation may be reversed in 1951/52, with more cotton, but less grain (other than rice), at least in the northern hemisphere.
The increased emphasis on rearmament brought about changes in prices and in food policy which affected food distribution in many countries. Demand for agricultural products became exceedingly strong, due to the exceptional expansion in industrial activity for rearmament and civilian consumption, with resulting repercussions upon employment, income, and demands for farm products. Recent trends have been favorable to farmers, expecially in the more developed countries, with an upward movement in the prices of their products and increased real income in most countries.
Fish prices showed little change, possibly because of somewhat larger supplies in several countries, while forestry incomes generally increased.
Future prospects are difficult to determine in view of the uncertainty about the development of economic factors outside the agricultural sphere, and the current heavy dependence of industrial activity upon political and military developments. Current conditions and reports indicate that the grain supply in 1951/52 is not expected to differ much from the supply in previous years, but an increased output is expected of other agricultural commodities, such as livestock products, fish, fats and oils, and fibers. The diversion of resources to defense efforts and the building up of a semi-war economy in many countries may not affect food output immediately during the coming year, but if manpower, raw materials, and industrial products are diverted to industrial expansion and rearmament to such an extent as to reduce resources for agricultural production, the upward trend in agricultural output may slow down or reverse itself.
A comprehensive scheme for the international allocation of raw materials and of materials and equipment for agricultural production would be an important factor in preventing a slackening of food and agricultural output in the future. To be fully effective, such allocation arrangements would need to be accompanied by measures to ensure cuts in the output of durable goods for civilian consumption in the highly industrialized countries sufficiently to release the resources needed for production of armaments in the magnitude now envisaged, without reducing supplies of labor and production goods for agriculture and without further inflation.
Agricultural Conditions in 1950–51
Production
Available information indicates that the world total 1950/51 food output was greater than in 1949/50. Bread-grain production (wheat and rye) was slightly larger than in the previous year and about equal to the average production of the prewar years. Wheat production (except is the U.S.S.R.) was about 3 percent larger than in 1949/50, an increase partly offset by some lag in the production of rye. Production of barley and oats increased, but maize production declined, while rice production is unlikely to show significant gains over the paddy crop of 150 million tons harvested in the previous year. Production of livestock products and fisheries products continued to expand, contributing significantly to the total increase in food and feed supplies.
In North America, the production of wheat was a little less than in 1949/50, the reduction in the United States crop not being entirely offset by a larger Canadian crop. This was, however, of poor quality, with much of it going for feed. In the United States of America, increased production of meat, livestock products, and sugar offset the effects of, the decline in wheat on total food supplies. In Latin America, production of most food crops is surpassing that of the preceding year, with the total output of cereals estimated at 31 million tons or 15 percent above 1949/50, mainly due to the better crops of wheat and maize, principally in Argentina and Brazil. Also, production of meat continued to increase in this area. In Europe, production of eight major food crops reached a new postwar high in 1950/51, in spite of a drought in Southeastern Europe (particularly Yugoslavia) which resulted in failure of the maize crop. Substantial increases were also reported in the output of European livestock products. In the U.S.S.R., available information suggests that the food output was higher than in any postwar year, with a good grain harvest, but production of meat and livestock products, though increasing, was still low compared with prewar per caput supplies.
Food output appears to have been maintained at average levels in Africa and the Near East. While over-all Far Eastern food production was maintained at the same level, there were good crops in China but very bad crops in India. The sharp cut in Indian rice production reduced the total output of all grains in the Far East to about 5 to 6 million tons below 1949/50. Adverse weather conditions also affected the maturing rice crops of Ceylon, Malaya, and the Philippines in varying degrees, while significant gains in rice area and production have been reported from Pakistan, Japan, and Formosa.
Food Supplies Poorly Distributed. Although these developments have made the world's current food supply slightly greater than in the previous years, the improvement in supplies unfortunately is primarily in regions where per caput consumption was at high levels. In most low consumption regions, notably the Far East, Africa and the Near East, no improvement is noticeable. The supply situation is particularly serious in the Far East, where it has been possible up to now to maintain a precarious balance between supply and demand for food grains only by heavy imports of wheat and coarse grains from non-Asiatic sources to offset the shortage of rice. In view of the recent crop failures in India, the Far East import requirements of wheat and coarse grain are currently estimated at an unprecedented total of 8 million tons. Even within countries where the total food supply has increased, food distribution has been adversely affected by rising food prices, and in some instances poorer groups in the population have been forced to reduce their consumption.
Reported visible food and feed stocks declined during 1950/51 in a number of countries, although secret strategic reserves may have increased. Available information indicates that wheat stocks in the four major exporting countries are being maintained at around 22 million tons, but it is doubtful to what extent they will be kept unaltered in view of the unsatisfied needs of deficit areas. Among the latter, the outstanding example is India, where grain stocks have fallen to a low of 0.8 million tons while supplies, including current production and scheduled imports, fall short of requirements by 2 million tons. In the United Kingdom, stocks of major foodstuffs declined during 1950 by almost half a million tons, while in some continental European countries, stocks of bread grains were depleted to avoid importing feed grains at high prices. Even in the United States, end of season stocks of maize, which were 22 million tons in the autumn of 1950, will be greatly reduced before the 1951 crop is ready for harvest.
Fiber Supplies Short. The current agricultural situation is also adversely affected by a reduction in fibers output, particularly cotton. Greatly curtailed acreage, together with somewhat lower yields, brought about an unexpectedly large contraction in the United States production of cotton in 1950, which was offset to the extent of only one third by increased production in Asia and Latin America. The Egyptian cotton crop was also short. Including carry-overs from the previous season, the global supply for 1950/51, including the Soviet Union, is estimated at 5 per cent less than for 1949/50. Consumption, on the contrary, was 10 percent larger. To maintain this consumption, stocks will be seriously reduced by the start of the 1951/52 season. The supply situation in wool is also exceedingly tight despite some recent recession of prices from unprecedented high levels, and some decline in consumption. Although the 1950/51 clip showed the largest seasonal increase in the postwar period, consumption is still exceeding production and stocks are at a low ebb. For jute alone the supply situation is better, since output in 1950/51 increased somewhat more than did consumption.
International Trade. Partly because of the persistent discrepancies between production and needs for foodstuffs and fibers in many regions of the world, and partly because of the great increase in the demand for most agricultural raw materials following the impact of the rearmament program, the volume of international trade in agricultural commodities in 1950/51 increased sharply and was above the 1949/50 level.
General Economic Conditions Affecting Agriculture
Economic factors outside the agricultural sphere were strongly influenced by hostilities in Korea and the subsequent expanding rearmament programs in the United States of America and Europe. These affected consumption, particularly of fibers, as well as the volume and composition of international trade, led to a rapid rise in demands for stockpiles and appreciably altered the price structure, both domestically and internationally. The expansion in industrial activity, employment and income in the highly industrialized countries, particularly the United States of America, inflated the demand for agricultural products during 1950/51 directly and indirectly, but eased somewhat during the spring.
Significant Changes in Prices. Due to the slowness with which agricultural output can respond to changed demand and the relatively small visible stocks of a number of commodities, prices rose steeply after the outbreak of Korean hostilities, when a tendency developed to accumulate larger than normal stocks. Prices of major food commodities in world trade increased on the average by almost 20 percent from June 1950 to March 1951. Though wheat generally showed little price change from a year ago, prices of non-food agricultural commodities, such as wool, cotton, rubber, etc. increased on the average by more than 50 percent. Similar increases have occurred in the prices of other raw materials. Prices of finished products have also advanced, but much less markedly. The result has been a deterioration of the terms of trade for the raw material importing countries, primarily the United States of America and Western Europe, as against an improvement in exporting areas. Prices of British imports, for instance, had by March 1951 advanced by 28 percent above the 1950 average while export prices had risen only 12 percent. Prices of U.S. imports in January 1951 were 30 percent higher than a year earlier, while prices of exports had advanced by only 10 percent. While these developments are a matter of relatively minor concern to the United States of America, they are of major concern to most countries in Western Europe, because of the adverse impact upon their balances of payments and because they constitute a source of inflation. The trade deficit of the United Kingdom increased from 71 million pounds in the first quarter of 1950 to 235 million in the first quarter of 1951, but its dollar reserves gained from the improved dollar earning power of the sterling area. The impact of rising agricultural prices on international trade is reflected in substantial increases in the value of trade of agricultural commodities. The rapid rise in the value of United States imports eased the previous pinch of dollar shortages and helped make it possible for some food importing countries to maintain or even expand raw material imports despite their worsened terms of trade, except for products like wool and cotton, where supplies were physically insufficient.
The increasing prices of imported agricultural products, together with the strong pressure of internal demand upon domestic supplies, have produced a considerable rise in the prices of agricultural commodities within exporting countries. In the United States of America the index of wholesale prices of farm products, which was at 159 in March 1950 (1926=100) increased to 184 in November, and to 203 in March 1951, or 28 percent in one year. In Western Europe, an average increase of roughly 10 percent has taken place in the index of wholesale prices of food since June 1950, with wide discrepancies among individual countries, partly in response to the varying degrees and efficiency of their internal controls. Similar increases occurred in other regions of the world, mainly as a consequence of the pressure of external demand. From March to May, however, the average wholesale commodity price levels stopped advancing and even slackened slightly in the United States of America as a result of some reaction from the rapid building up of producers', distributers', and consumers' inventories during the autumn and winter, and the effect of higher taxes and tighter credit controls. Prices of products such as cotton, grain, rubber, and wool also declined in other markets.
Effects upon Farm Prices and Farm Incomes. The increase in prices of agricultural commodities was particularly favorable to farmers in most countries, with greater cash income from about the same volume of production. Net farm income increased somewhat less, however, because of the simultaneous rise in production costs, both for capital equipment and labor. Yet rising costs generally lagged behind rising prices, giving farmers a net gain in income. In the United States of America the parity ratio (i.e. prices received by farmers divided by prices paid) advanced from 95 in March 1950 to 111 in March 1951.
Small farmers in less developed areas probably had less net gain than other farmers. The benefit of rising prices is not widely spread since many small farmers in such regions consume most of their production, and sell relatively little, and the marketing of their surplus food crops is inadequately organized. On the other hand, the benefit of rising prices in commercial agriculture in these regions often goes mainly to a closely knit group of merchants and large producers, who frequently hold a real monopoly of distribution. Rising prices may not help small farmers to enjoy a better standard of living or increase their productivity, because of concurrent increases in the prices of consumer goods and of requisites for farm production. Such farmers frequently depend largely on imported consumer goods, particularly textiles, and supplies of these goods have been short and prices high. In many countries of the Far East, the recent sharp increases in prices of export crops such as rubber, fibers, and oils and fats, has seriously aggravated inflationary tendencies, and led to anti-inflationary measures such as fixing internal selling prices and imposing heavy export taxes.
Prospects after 1950–51
Agricultural Production for 1951/52. In the United States of America, which is still the principal wheat exporter, the coming harvest seems likely to equal last year's level. Recent estimates are of a combined winter and spring crop of 1,054 million bushels compared with 1,027 in 1949/50 and 1,031 million for the average of the last ten years. The Canadian wheat crop, which is largely spring wheat, cannot yet be estimated, but it is believed that sowing conditions were fairly favorable, though a slightly reduced area was sown. Production of other foodstuffs, particularly meat and livestock products, is expected to increase both in the United States of America and Canada, but with an increased animal population, a strong demand for meats and a greatly reduced maize carry-over, there may be increased dependence of livestock feeding on food grain supplies. Expectations in Latin America are good due to the definitely increasing trend in food production in most countries of that area. Increases are expected in the production of meat, grains, sugar, vegetables, and fresh fruit in spite of a probable shortage of imported tools and equipment. In Western Europe, on the other hand, crop output seems likely to be somewhat smaller than in 1950 because of a cold, wet winter and spring and delayed spring field work, while expansion of pig raising may be hampered by difficulties in importing enough feed grain. Except for an unusually heavy locust infestation in the Near East and substantial parts of the Far East, there are no clear indications, so far, with respect to factors which may affect the 1952 food supply in other regions. With average weather conditions, rice and other grain production in the Far East may exceed last year's despite some tendency to substitute cotton and oil seeds for grain, as a result of recent price changes.
Although the recent heavy locust infestation has apparently been fairly well checked in Iran, it continues to be very serious in Pakistan and India and may reduce severely grain production of these countries in 1951. Unless extraordinary measures are taken for its eradication, locust damage may be far more serious in the following year.
The fiber supply situation will probably be improved in 1951/52. Prospects for the forthcoming cotton crop are good, with substantial increases expected in the United States output and some further gains in other producing areas. Wool production may be slightly higher due to continued high prices, but the demand-supply situation will almost certainly continue to be tight.
Prospective Demands A sequence of events, which deserve the closest consideration, has been set into motion by the rearmament programs in many countries, particularly in the United States of America.
The first link in the sequence is represented by the expenditures for new plant and equipment planned in the United States of America for 1951: they amount to a record figure of almost 24,000 million dollars (29 percent more than in 1950 and 24 percent above the previous peak) and should provide an increase in total industrial capacity by at least 9 percent on top of a 7 percent increase in 1950. It is believed that this huge expansion in industrial capacity will make it possible to cope with the rearmament effort without unduly cutting output of durable goods for civilian consumption. United States armament expenditures in 1952 are expected to run about 10,000 million dollars above those projected for 1951, with a corresponding increase in the volume of military goods produced. Similar thinking, at the moment mainly at a theoretical rather than at a practical level, prevails in Europe. In the absence of any great change in these programs, the result may well be an unprecedented expansion in industrial production in the countries belonging to the “rearmament area.” This is expected to be only partially offset by reduced production in the fields of housing and of other durable consumer goods, due to materials shortages, tighter credit controls, and other restrictions.
The resulting increased pressure upon the supplies of raw materials has created a competition in procurement and a rise in prices which is likely to hamper purchases by those countries of the “rearmament area” which are in a weaker international bargaining position. The scramble for raw materials has been further intensified by a tendency to build up both commercial stocks and government stock piles. Although the prices of raw materials have been leveling off in recent months, primarily as a result of the slackening of stock piling and of purchasing for commercial stocks, it is generally expected that they will resume their upward movement before the end of the calendar year, with a reduction in stocks and an expected further expansion of industrial output in the “rearmament area.” Also the goal of the United States of America stock piling program has been more than doubled to nearly 10,000 million dollars, of which only a little over 3,000 million is now on hand.
If a material shift in political factors, such as the end of the Korean conflict, should occur, however, and result in a reduction of the projected tempo of rearmament, this might cause marked downward revisions in production, employment and prices, below those expected. On the other hand, if there were a further expansion of the area of hostilities or an increase in political tensions, this might have opposite effects.
Subsequent Agricultural Production Prospects
Industrialized Countries. It is doubtful to what extent the industrial expansion under way will leave sufficient supplies of materials for farmers so that agricultural output can continue to rise, especially in regions such as Western Europe. In view of the increasing levels of employment and income, the demand for agricultural products will probably be sustained and prices may continue to rise, but this may not necessarily involve a parallel expansion in output.
Current trends outside the agricultural sphere are unlikely to affect appreciably agricultural supply in 1951/52. They may, however, have an increasing impact on agricultural output and might substantially alter the supply situation in 1952/53 and thereafter. If industrial expansion for rearmament as well as for civilian consumption continues, then durable goods will absorb an increasing amount of resources, particularly manpower. Agricultural employment in the United States of America fell from 6.7 million persons in March 1950 to 6.4 a year later, a decline of about 5 percent in one year, while employment in nonagricultural activities increased from 50.8 to 53.8 million. Further rises in industrial production will increase even more the demand for agricultural labor; already in 1950, United States farm wage rates rose by about 7 percent.
The prospective agricultural situation is even more uncertain in Western Europe. Apart from the changes in the ratio of prices received and paid by farmers, European producers may also be confronted with shortages of agricultural requisites such as fertilizers, insecticides, machinery, and other implements. Moreover, the European problem is aggravated by the payment position of most countries. If Europe uses more of the limited raw materials for producing armament and civilian durable goods, and reduces supplies of production goods for farmers, its agricultural output may deteriorate. If it endeavors to maintain its agricultural output, either the rearmament program or the output of durable goods for civilian consumption, and perhaps both lines of activity, may need to be severely curtailed. Although it is difficult to make predictions at this stage, Western Europe may try to follow a course midway between these alternatives. Europe may also experience a reduction in imports of agricultural commodities particularly of foodstuffs, both because of the limited supplies available from the United States of America (on which strong pressures will be exerted by other deficit areas), and because of the need of squeezing into its balance of payments with overseas larger imports of raw materials and industrial equipment. Exact developments, however, will be influenced materially by the extent of rearmament programs and the relative strength of inflationary developments in North America, Europe, and the latter's overseas markets. The food supply in Europe may suffer in the future. While a better integration of European agriculture (such as the one proposed by France) might help to meet anticipated difficulties, plans of this type are of a long-term nature, and agreement on such plans is difficult to secure.
Prospects in Less Developed Regions. Developments in the industrialized countries may also have a serious impact upon the economies of less developed areas. The high prices for cash crops may encourage increased production of these commodities in the immediate future. This premium on the production of exportable commodities may divert resources from basic foodstuffs needed for domestic consumption. There are indications, for instance, that in a number of Far Eastern countries rice growers are leaving the field to obtain a share of the high rubber wages. In North Borneo the government had to postpone several major postwar rebuilding projects because laborers had been attracted by rubber. These trends may prove to be detrimental to the whole process of economic development of less advanced regions. Furthermore, higher returns from exportable products and higher prices for imported durable goods are causing an increase in local farm prices and a general upward trend in the cost of living, and other inflationary manifestations. Although underdeveloped countries may benefit from an improved national income, the improvement will be limited by the ability of governments to counteract adequately the ill effects of inflation. Efforts to help counter these effects include measures taken in certain non-self-governing territories in Africa to increase production for internal consumption and, in the Far East, the Colombo Plan, which has, in part, similar objectives.
Efforts by Australia, New Zealand, Mexico, and other countries to check inflationary pressures may also be mentioned. In the two former countries for instance, a substantial part of wool growers' incomes has been frozen for the time being, either for deferred payment (New Zealand) or as provisional taxation (Australia). But the success of these efforts is uncertain in view of the current trend of prices favoring commercial crops and other exportable commodities and, in some cases, because of the inability of public administrations to enforce their ant-inflationary measures. The experience of the recent postwar period when abundant financial resources accumulated by less developed areas during the war years were rapidly dissipated should strike a warning note. The rearmament drive and reductions in the supplies of producer goods available for export from the industrial countries, may also make it difficult for underdeveloped countries to obtain equipment and machinery needed for their development and reduce their imports despite increased earnings of foreign exchange.
Effects on Foreign Trade. The probable impact of these developments upon international trade in food and agricultural products cannot as yet be judged. However, it is to be expected that the needs for industrial raw material imports by the countries belonging to the “rearmament area” will limit their imports of foodstuffs. A number of countries may therefore try to satisfy their domestic demand for food from domestic production, if that can be increased despite the diversion of resources to industrial expansion. The curtailment of the European Recovery Program (ERP) is another contracting factor for international trade in foodstuffs, although some compensation may come from expanding United States aid programs, particularly in the Far East.
On the whole, it seems possible that under the present circumstances the world may be heading into a period in which the recent increase in agricultural output may slacken or even be reversed, with resulting insufficient supply, particularly of basic foodstuffs. Inflationary tendencies, which are already evident in many regions of the world, aree likely to gather momentum as a result of the widening gap between demand and supply both for agricultural products and other consumer goods. A further disequilibrium between food production and food needs, both domestically and internationally, would be the inevitable consequence of such developments. Both the process of recovery in Western Europe and that of economic development in the less developed areas might be seriously affected. This threat calls for serious consideration and international co-operation in the near future.
Possible Measures to Maintain Future Agricultural Production and Food Supplies
Since, in the countries belonging to the “rearmament area,” future uncertain prospects of food and agriculture are largely determined by the unbalanced development in industry in relation to agriculture, it seems quite clear that a change in those prospects can only result from a change in the policy decisions of those countries. Because available economic resources, both raw materials and labor, are limited in the short run, and because increasing productivity can provide only a small margin of freedom, the present exceptional strain on economic resources may result in continued inflation.
Many steps already underway toward recovery and economic development appear to be in the right direction. The Expanded Technical Assistance Program to aid economic development is a fundamental force, which should have cumulative effects in improving production and marketing methods and turning the trend of agricultural production more decisively upward. The plans for agricultural integration in Europe and plans for development such as the Colombo Plan, as well as the proposed expanded financial and technical assistance to the underdeveloped areas, as suggested in the Gray and the Rockefeller Reports and the recommendations of the UN Expert Committee1, may prove to be positive contributions to the economic progress of the world. These programs, however, cannot be adopted or implemented in a short time, and their ultimate success may depend in part upon what is being done in the immediate future.
The proposed international allocation of scarce raw materials appears to be one short-term solution to the problems which now confront the world, provided that during the period of accelerated rearmament, production of durable goods for civilian consumption is reduced sufficiently to avoid an excessive strain upon available resources. No matter how well materials are allocated, agricultural production may suffer if the nations of the world attempt to divert too much of their resources to a rapid increase in industrial production. It may therefore become necessary to limit industrial investment still further. In the United States of America, new investments are still stimulated by a number of inducements, including accelerated depreciation for tax purposes; but in Canada a policy of deferred depreciation has recently been adopted, under which persons making new investments (except those in farming, forestry, and fisheries) are not allowed to deduct depreciation allowances for tax purposes until four years after the investment is made. Parallel measures to control or reduce private investment have been adopted in Sweden and the United Kindom, and are under consideration in Switzerland and Western Germany.
Furthermore, measures have already been taken by some European countries to assure bread grain deliveries by farmers, in order to prevent the high meat prices from encouraging excessive diversion of bread grains to livestock feeding with resulting short supplies of grain for consumers. Other countries in Europe might well consider similar measures to protect food supplies for consumers before the situation becomes more difficult.
A number of countries, including the United States of America, are attempting to limit inflationary forces by reimposition of price controls. Unless these controls are made to include rationing as well as price setting, they can be of only limited effectiveness; and regardless of price controls, world food supplies will become shorter unless food production continues at least to keep pace with population growth.
