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6 March, 2008 - Embargoes Don’t Work

During a campaign year there is no limit on issues that can be brought up by candidates. Last week I talked about my concern over the criticism of NAFTA by the Democratic presidential candidates.

This week I am talking about my concern over suggestions that we may have to change export policy. The reason, escalating commodity prices that cause higher food prices. Escalating commodity prices basically benefit the 2% of our population involved in producing the commodities, but higher food prices affect every consumer/voter in the nation, and with increasing complaints about inflation in food prices, there is now talk of having to do something about it.

A few days ago, Rob MacKie, who is President and CEO of the American Bakers Association, stopped by my office to talk about the “American Bakers March on Washington” scheduled for this month. The bakers will march to Capitol Hill to talk to Congressmen and Senators; then to USDA to talk to the Secretary of Agriculture; and finally, to the White House to talk with the President’s agricultural advisor. Their message?...the baking industry cannot deal with record high wheat prices and need some form of relief from the government. He told me the cost of wheat flour has gone up 245% in the last year, and we are going to see sharply higher food inflation in 2008.

He then said “I don’t want us to go back to the days of the embargo, but we need to rethink our export policy.” Well, what else can you do on export policy than perhaps embargo our sales of wheat to foreign buyers because it is a combination of the lowest wheat stocks in 60 years and strong foreign demand that has driven our wheat prices to these record levels.

But, before we start talking embargo, I hope we have learned from history. In the late 70's, President Jimmy Carter embargoed wheat sales to the Soviet Union because of their Afghan invasion. That sent our farm prices into a tailspin and played a major role in the recession/depression of the 80's in rural America.

Before that however, President Richard Nixon, in an attempt to control food inflation, froze prices and banned soybean sales to Japan, our biggest soybean buyer. Japan reacted quickly, saying America would no longer be a reliable supplier, and they turned their attention to Brazil and provided huge amounts of financial assistance to get Brazilian farmers into soybean production. We know the results of that embargo; Brazil is now our biggest competitor in the world soybean market.

As I have said many times, embargoes don’t work!...so let’s not even think of going that way to “change our export policy.”

My thoughts on Samuelson Sez.