Good News for U.S. Exporters

By John Haldane

The United States shipped a record $3.7 billion of agricultural products to the Middle East and North Africa in 1984, giving the U.S. a 12 percent share of the $31.5 billion Middle Eastern agricultural market. The increase in U.S. agricultural exports contributed strongly to a $4 billion 1984 trade surplus with the region, continuing a steady climb that began in 1981 after a $20 billion U.S. balance of payments deficit with the region in 1980. In 1984 Iraq and Saudi Arabia bought record amounts and Morocco nearly doubled its 1983 purchases.

However, the sustained high value of the dollar, high real interest rates, lower primary commodity prices and the increased real debt burden of debtor nations have combined to stimulate increased foreign competition for shares of the Middle East and North African markets for agricultural goods. Many new suppliers have entered the export market to earn badly needed foreign exchange. Thus traditional suppliers, including the U.S., have turned increasingly to non-price means, especially credit, to protect or expand their market shares.

U.S. financing through U.S. Department of Agriculture credit facilities and blended credit peaked at over $4.5 billion in fiscal 1984. This enabled the U.S. to boost or maintain its market share in several nations of the region, notably Morocco, Algeria, Iraq and Egypt.

The region's total revenues fell sharply because of the combined effects of lower petroleum prices and reduced oil production. Despite this drop in income, Arab governments continued their efforts to maintain dietary levels, fulfill political promises, and avert instability by importing necessary food products, but at a declining rate. For example, although the imported food increase totaled nearly 74 percent from 1979 to 1983, the increase was only 6.5 percent last year.

Saudi Imports Lead Region

Saudi Arabia led the region in agricultural imports, followed by Egypt, Iraq and Algeria. The Saudis have been favoring high-value products and a rebound in barley imports raised their total imports from all sources to $5.7 billion in 1984. Saudi imports of farm machinery, pesticides, fertilizers and seeds more than doubled during 1980-82, to $466 million. Imports of American farm machinery alone have grown 65 percent over the past five years, hitting $313 million in 1983. Saudi food imports from all sources continue to total about $5.5 billion annually. The U.S. share of this market has actually increased slightly each year since 1980, averaging about 12 percent, or more than $700 million annually.

U.S. agricultural exports to Morocco doubled to $396 million in 1984. Shipments of over 2.5 million tons of wheat accounted for $352 million of the total. Sales of 95,000 tons of corn, 43,000 tons of barley, and 14,000 tons of sorghum also were recorded. Drought in southern Morocco and the resulting severe shortage of feed induced this unusually large purchase of coarse grains.

Early in 1984, the United States and Algeria signed a Memorandum of Understanding providing U.S. technical assistance for Algerian agricultural development. A U.S. team evaluated date palm and irrigated vegetable cultivation practices in the south while a second team surveyed Algeria's livestock, poultry and feed sectors. In addition, the U.S. government opened an agricultural trade office in Algiers to expedite agricultural trade between the two countries.

In fiscal 1983-84, the U.S. offered Algeria $160 million of blended credit for purchase of about 900,000 tons of U.S. wheat. Algeria did not use the credit, however, preferring to engage in barter trade with its hydrocarbons rather than increase its external debt obligations.

U.S. Subsidizes Wheat Sales

In June 1985, therefore, U.S. Secretary of Agriculture Block decided to sell Algeria up to 1 million metric tons of wheat in the first of a series of U.S. Government-subsidized sales designed to offset what he termed unfair trade practices by competing food exporting nations. Noting that the U.S. share of the Algerian wheat market fell from 41 percent in 1979-80 to about 16 percent in 1984-85, Block pointed out that "during the same period the European Community, with its program of export subsidies, had increased its market share from 29 percent to an estimated 59 percent."

The striking upward trend in U.S. exports of farm products to Iraq during 1982-84 was the result of U.S.D.A. credit financing and was dominated by cereals. In 1983 and 1984, Iraq was the fastest growing major market for U.S. farm products with the value more than doubling in 1983 and reaching $535 million in 1984. The commodity mix will further diversify in 1985 with recent Commodity Credit Corporation (CCC) cash sales of dairy products and credit guarantees for tallow, tobacco, pulses, processed foods and sugar. The value of U.S. agricultural exports to Iraq in 1985 will be in the range of $750-800 million—greater than U.S. farm sales to China. Over 90 percent of the shipments will be financed through credit guarantees, and much of the remainder will consist of cash sales from CCC stocks at relatively low prices.

Despite Egyptian political decisions to limit food import growth, including stringent regulations for foreign exchange allocations and ceilings on average import prices paid, food imports have continued to rise. In 1984, lower competitor prices, special trade arrangements, and changes in the U.S. credit mix combined to increase Egypt's agricultural imports to a record $4.1 billion. The U.S. share was approximately 20 percent. In 1985, U.S. agricultural exports to Egypt may reach $1 billion, mostly because of gains for cotton and tobacco through credit arrangements. Although total U.S. exports to the Middle East continue to climb, the high value of the American dollar, improved terms of trade between OPEC members and some non-American suppliers, and the increased use of non-price competition have contributed to a steady erosion of the U.S. market share in the Middle East and North Africa. To alleviate this problem, senior U.S. Department of Agriculture officials are pushing competitive credit arrangements (as with Algeria) more actively to insure that the United States continues to enjoy a favorable balance of trade with the important Arab market.

John Haldane is a specialist in Middle East affairs who has served as a foreign service officer in Baghdad, Beirut and Cairo, and as an international economist in the Departments of Commerce and Treasury.