Expanding imports of palm oil threaten American food prices and the stability of farm income. Imports of palm oil into the United States in 1976 have already surpassed all records of any previous year. Imports for the marketing year ending this month, are predicted to reach 925 million pounds compared to 616 million pounds in the 1974-75 marketing year: Marketing year 1975-76 Amount imported (million lbs.) 925 (est.) 1974-75 1973-74 1972-73 616 256 306 Some 813.6 million pounds of palm oil already has entered the United States this year. That's 32 percent ahead of the previous time a year ago. It is no accident then, that farmers have cut back on production of soybeans. The September crop production report announced September 10 estimated 1.274 billion bushels of soybeans will be harvested this year, five percent less than last month's estimate and 16 percent below a year ago. In like manner, the August index of prices for soybeans was also sharply lower. Soybeans, at $6.07 per bushel, were $.66 lower than a month earlier, although $.27 higher than a year ago. If palm oil imports increase as predicted by the Agriculture Department, results will shape up like this: lower consumption of American vegetable oils, lower farm prices due to losses in the sale of soybeans, and higher consumer prices in American meats, poultry and dairy products. Palm oil is directly competitive with American produced soybean oil, cotton seed oil, and other oils from crops grown in the United States. A sharp gain in palm oil imports into the United States was registered in August, 1974. During a fifteen-month period from August 1974 to October 1975, imports nearly doubled to an average of 63.4 million pounds per month, compared to an average 32 million pounds monthly between the period January 1972-July 1974. Even more discouraging is a rise in imports for the first five months of 1976 where monthly imports between January and May climbed to 71.1 million pounds. A Foreign Agriculture Service report released in January observed that "A substantially larger share of palm oil exports are moving into the U.S. markets." The study also noted that while major markets, including the European Community and Japan impose quotas and duties, the U.S. has neither. The United States has no protection whatsoever against huge imports of palm oil. The phenomenal surge in palm oil exports by such countries as Nigeria, Zaire, Indonesia, West Malaysia, the Philippines and others did not occur through the forces of a free market. Instead, some 32 loans for the development of palm oil were approved to these countries beginning in 1965. Funds came from three major international financial institutions: The International Bank for Reconstruction and Development (World Bank), the Inter-American Development Bank, dealing solely with Latin American countries and the Asian Development Bank. U.S. funds contained in foreign assistance appropriations bills have helped to underwrite these palm oil development loans. During 1970-1975, international loans made available by international lending agencies boosted annual palm oil production by an estimated 300,000, tonsmore than one-fourth of the increase in production. More than two-thirds of this amount is being exported. I submit that the United States no longer needs to encourage production of a product already in abundant supply. In fact, the Foreign Agriculture Service has predicted that if palm oil importation into the United States continues, we are going to see 15 millions of soybeans, or about 500,000 acres of soybeans displaced. Expansion of palm oil production, coupled with substantially larger imports into the United States, poses serious competition for the U.S. soybean industry. Possible damage to soybean and cotton farmers already has been acknowledged by the Agriculture Department. It is important to recognize that when soybean oil prices decline in the United States, it becomes necessary for soybean meal to carry a larger share of the cost of producing soybeans. If prices are not strong enough, less soybeans will be produced and there will be less soybean meal for high-protein supplements fed to livestock. This means higher cost for the producer and eventually higher consumer prices for pork, chicken, turkey and dairy products. Assistant Secretary of Agriculture, Richard Bell announced July 29 a new policy in connection with further support for soybean loans. Bell said the United States will cease support for any future palm oil development loans where palm oil was destined for export. This policy was adopted by the National Advisory Council on International Monetary and Financial Policies about September 7, 1976. A few small palm oil development projects already in the pipeline will not be opposed, however. I endorse the policy and believe the House ought to add its support by passing this resolution. The Administration already has affirmed that our domestic industry could be injured by further support for palm oil loans for export. Instead, we ought to help poor countries develop their own agricultural economy and those efforts should be directed primarily at helping lift food production in counties where it is scarce. There is no reason for the United States to support palm oil production in such volume that its long-term effect proves injurious to the foreign and domestic marketing of soybeans or its by-products. Accordingly, the House should do its part and affirm U.S. policy to cease support for such loans through international lending agencies. STATEMENT OF W. D. LAWSON III, PRESIDENT, NATIONAL COTTON COUNCIL OF AMERICA The National Cotton Council, which represents U.S. cotton producers, ginners, warehousemen, cottonseed crushers, merchants, textile manufacturers, and cooperatives, is greatly concerned about the problems resulting from excessive palm oil imports into the United States. In the past ten years, palm oil has become one of the most serious competitive threats to be faced by U.S. vegetable oils. Reasons for palm oil's competitive gains at the expense of cottonseed oil and other U.S. produced vegetable oils are: 1. Rapid expansion of palm oil production in certain developing countries; 2. Rapid expansion of world exports of palm oil; and, 3. Unrestricted entry of palm oil into the United States. World production of palm oil has increased from 2.8 billion pounds in 1965, to 6.4 billion pounds in 1975, and current estimates are that world production will almost double again by 1985. Practically all of this increase in palm oil production is being sold for export with an inordinate increase coming to the United States in direct competition with cottonseed and other U.S. vegetable oils. U.S. imports of palm oil have risen from 0.5 percent of the total world exports in 1965 to more than 22 percent in 1975. Combine these percentages with the fact that world palm oil exports more than tripled during the same ten year period, and it can clearly be seen that the United States is absorbing a disproportionate share. As U.S. domestic disappearance of palm oil rose from about 34 million pounds in 1965 to more than 900 million pounds in 1975, domestic disappearance of cottonseed oil dropped from 1,590 million pounds in 1965 to approximately 530 million pounds in 1975. While the lower domestic disappearance of cottonseed oil in 1975 reflects both smaller supplies and increased exports of cottonseed oil, there should still be a keen awareness of the rapidly expanding inroads that low priced palm oil imports are making into the U.S. vegetable oil market. U.S. consumption of imported palm oil amounted to less than 0.1 percent of the total U.S. edible fats and oils consumed in 1965; 1.2 percent in 1970; and 7.2 percent in 1975. If increases in palm oil imports are allowed to continue unchecked, projections indicate that U.S. palm oil imports would account for 16.8 percent of the total edible oils consumed in the U.S. in 1980 and 18.0 percent of the total by 1985. The depressing effect that low priced palm oil imports have on the prices for U.S. vegetable oils is even more adverse to U.S. vegetable oil interests than the physical imports. In 1965, domestic disappearance of cottonseed oil was 14.2 percent of the total edible oils and fats; 7.3 percent in 1970; 4.3 percent in 1975; and projections indicate that domestic consumption of cottonseed oil could continue to decline to 2.3 percent of the total in 1980 and less than 0.5 percent of the total in 1985. Such a decline would mean a loss of over 96% of the vegetable oil market held by cottonseed oil in 1965. Given the fact that U.S. imports of foreign produced vegetable oils are increasing more rapidly than is domestic consumption, the implications for the future are certain. Unless steps are taken to restrain future imports of palm oil to reasonable levels irreparable damage to the U.S. vegetable oil industry will result. Cottonseed oil is used primarily in the manufacture of shortening, margarine, salad oil, and cooking oil. At the present time, quality disadvantages of palm oil, which is a highly saturated and semi-solid product, require that it be blended with cottonseed and other U.S. vegetable oils for use in shortening and margarine. While palm oil can be used in salad oil and cooking oil only after a relatively expensive fractionating process, its use in these important end products is increasingly rapidly. Total U.S. consumption of fats and oils for edible end uses has increased more than 7 percent since 1970; of that 7 percent increase, largely because of its low price, palm oil accounted for almost 80 percent of the increase, and all other fats and oils accounted for the balance. Since 1970, the use of palm oil in shortening has increased by more than 500 million pounds, while the use of cottonseed oil and soybean oil has declined by nearly 300 million pounds. In the same six year period, there was also a decline in the quantity of cottonseed oil used in margarine, salad oil, and cooking oil, while there was a substantial increase in the amount of palm oil used in these products. As pointed out in the foregoing, the decline in the domestic consumption of cottonseed oil results in part to lower supplies and increased exports. But, what will happen when cottonseed oil production returns to a more normal level if in the meantime, the traditional domestic markets for cottonseed oil have been eroded away by lower priced palm oil? It is apparent that cottonseed oil's use in the United States would decline further, and the price of cottonseed oil unquestionably would be depressed due to the competition of lower priced palm oil. The average price of palm oil from 1972 to 1975 was 14.3 cents per pound f.o.b. U.S. West Coast ports, as compared to an average of 23.7 cents per pound for cottonseed oil and 23.1 cents per pound for soybean oil. It is possible for palm oil to underprice U.S. vegetable oils because of the low production costs of palm oil which are reported to be about 9.0 cents per pound f.o.b. Asian ports. Sources within the trade indicate that the under-pricing practices are very likely to continue. It is also interesting to note that West European prices for palm oil from 1972 to 1975, after deducting the higher freight rate to Europe, averaged 5.0 cents per pound above corresponding U.S. import prices for palm oil. It appears that the palm oil exporting countries are attempting to establish a permanent outlet in the United States for their exports, and to do this, they have been willing to sell to the United States at lower prices than they sell to Europe in order to establish a firm foothold in the U.S. vegetable oil market. Palm oil exporting countries receive a higher price for palm oil exports to Europe than to the United States, and their exports to Europe are held down either through mutual agreements or through import restrictions enforced by the European countries. The U.S. vegetable oil industry, including our cottonseed oil industry, is quite important to the over-all well-being of the United States. The industry plays a vital role in providing important food products for the American people, and cottonseed meal is used as a high protein livestock feed. The exports of both cottonseed oil and meal also contribute significantly to our country's balances of trade and payments. Consequently, if the industry is undermined by imports, there would be adverse repercussions for our whole National economy. The Council supports the U.S. commitment to help the less developed countries improve their economies and provide a better livelihood for their people. However, in helping these less developed countries, the United States should be realistic and should not, at the same time, undermine any important sector of our own economy. Much of the production of palm oil plantations are the result of the use of U.S. tax dollars. These tax dollars continue to be used to underwrite loans for a substantial portion of the expansion in world palm oil production through the auspices of certain international financial agencies, which are members of the World Bank Group, to which the United States is a major contributor. These loans were responsible for 26 percent of the growth in world palm oil production from 1970 to 1975. Additional loans which have already been authorized and which will be implemented between 1975 and 1980 will support 45 percent of the anticipated increase in world palm oil production during the 1975-1985 period. All of the loans mentioned above have already been approved, and the increased production estimates do not include any additional production that might result from any additional loans which might be approved in the future by the World Bank Group. While U.S. capital has been used to fund a substantial portion of the expansion of palm oil production, the lack of any restrictions on palm oil imports into the United States has made this country the principal market for the increasing palm oil exports. We recommend adoption of the following policies in respect to granting direct and indirect assistance to less developed countries: (a) Direct U.S. Aid: U.S. assistance should be granted principally to enable a country to become more nearly self-sufficient in the production of a particular agricultural commodity; and U.S. assistance should not be given to help a country become an exporter of an agricultural commodity unless it is anticipated that there will be a long-term world shortage of the commodity and substitutes therefor; (b) Indirect U.S. Aid: For aid granted by international organizations of which the United States is a member, the United States should endorse the granting of assistance which would help a country become more nearly self-sufficient in the production of an agricultural commodity; but the United States should not endorse the granting of assistance to help a country become an exporter of an agricultural commodity unless it is anticipated that there will be a long-term world shortage of this commodity and substitutes therefor; and, (c) Assistance to Palm Oil Exporting Countries: With respect to palm oil exporting countries, the Council recommends that the United States directly or indirectly (through international organizations), help these countries to develop additional markets for their palm oil exports in diet-deficient countries where the palm oil could upgrade the nutritional levels of the people at a relatively low cost. In our opinion, the suggested policy outlined above would be a meaningful and defensible posture for our country to take in respect to granting aid to the lessdeveloped countries. We respectfully recommend that the Subcommittee on International Development Institutions and Finance urge its adoption by the U.S. Government. The Council understands and appreciates that trade must be carried out on a two-way basis and that the United States must import as well as export; and we endorse the concept that through expanded international trade, benefits can accrue to most countries, including the United States. However, we believe that this objective can only be attained in a meaningful way if imports into the United States are not allowed to become so great that they will cause excessive interference with our domestic markets. In this regard, the Council recommends that the Subcommittee strongly urge that the Administration take steps to provide reasonable restraints against excessive imports of vegetable oils into the United States by negotiating bilateral or multilateral agreements with the principal vegetable oil exporting countries whereby these countries would voluntarily limit their exports of vegetable oils to the United States. Further, we hope that the Subcommittee will recommend that the U.S. Government strongly urge the governments of palm oil producing countries to place a moratorium on the planting of additional trees for the production of palm oil for export. We appreciate having the opportunity to present the views of the Council to the Subcommittee. NOTE: The figures quoted in this statement were obtained from, or calculated from, U.S. Department of Agriculture reports. U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON AGRICULTURE, SUBCOMMITTEE ON DEPARTMENT OPERATIONS, Hon. ROBERT S. MCNAMARA, President, World Bank, INVESTIGATIONS AND OVERSIGHT, 1818 H Street, NW., Washington, D.C. DEAR MR. MCNAMARA: As you know, the State of Texas is a major United States producer of citrus products of all types, particularly grapefruit. Indeed, the famous Ruby Red variety of grapefruit grown in Texas is generally acknowledged to be among the finest grapefruit produced in the world. The investment in citrus in Texas and the employment it provides is a major portion of the economy of our state. If anything were to happen to weaken this industry, it would have a very adverse economic impact on the citizens of the citrus producing area located in the Rio Grande Valley of Texas. Obviously, we are concerned at any governmental action which threatens to damage the citrus industry. For this reason, I was shocked to learn that last year the International Bank for Reconstruction and Development allowed its staff to make a study on how developing countries could gain at the expense of the U.S. citrus industry. This study was known as Bank Staff Working Paper No. 193. The paper examined the potential for substituting sales of citrus to be produced in the developing countries for a large share of the consumer market in the United States and other major consuming countries that is presently held by the U.S. industry. Not only does the paper assume that U.S. producers should lose a large portion of their hard-earned markets overseas but also that they should suffer a sizable loss of sales in their own domestic market. I am not aware of the paper recommending any ameliorating concessions from other countries to U.S. producers. It is my understanding that the Bank has authorized a related study regarding the most appropriate manner to market fresh citrus produced in developing countries. This citrus would be marketed in direct competition with U.S. citrus exports. It's incredible that an industry which needs a sizable and continued growth in its own export position should be asked to so participate through its tax revenues in any program of financing its competitors in whole or in part. Certainly no one can support any such program. Nor can anyone agree that it is necessary to injure the U.S. citrus industry in order to assist developing countries. Since the United States is a major contributor to the International Bank for Reconstruction and Development, I insist the Bank should not engage in activities which are flagrantly destructive to important United States' interests. You are urged to reject the scheme discussed in these studies and I would appreciate it if you would confirm that the Bank will not pursue such a policy. Looking forward to hear from you, I am Sincerely, E (Kika) DE LA GARZA, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT, Hon. E (KIKA) DE LA GARZA, DEAR MR. DE LA GARZA: Thank you for your letter of July 21, 1976 commenting on statements made in a recent Bank Staff Working Paper entitled, "Possible Effects of Trade Liberalization on Trade in Primary Commodities." This is one of a series of Bank studies on commodities which assist the management in planning our agricultural lending program, which last year financed projects totalling $1.85 billion in 40 poor countries. The staff study was initiated at the time the new round of international discussions on trade were beginning (the so-called Tokyo Round). In this context, it has been recently reported in the press that the U.S. is proposing certain tariff cutting measures. Moreover, last November President Ford signed an Executive Order giving generalized system preferences for imports from poor countries. The Bank's study was an effort to analyze the possible effects of the removal of tariff and non-tariff barriers in OECD countries on the consumption, prices and trade flows of nine internationally important primary commodities. The main focus was on defining the total expansion of consumption and the extent of benefits likely to accrue to the developing countries if a program of gradual liberalization was started. The results are theoretical in nature and imply no endorsement of any specific policy or pattern of production on the part of the Bank management. The Bank plays no role in trade arrangements and we take no official position on this question. As you know, all loans as well as statements |