TRADE SHORTAGE?

October 20, 1998

Tom Bearden reports on why some American companies are finding it increasingly difficult to sell their products overseas.

TOM BEARDEN: Randy Suess and his father just finished harvesting one of their best wheat crops in a decade, but their bumper crop has not bumped up their bank balance. RANDY SUESS, Wheat Farmer: This here has been kind of a short year because the price being down. TOM BEARDEN: Suess is talking about the price of soft white wheat, the kind of wheat he grows on the gently rolling hills of Eastern Washington, about an hour south of Spokane. RANDY SUESS: I think we're approaching a 17-year low right now. And it has picked up recently, in just the last few days, because of some sales, but from harvest time up until just this last week, it's been really low. TOM BEARDEN: 90 percent of the wheat grown in Washington state is exported, nearly all of it to Asia. It's milled into flower there and used to make Thai noodles and Pakistani breads. The problem for Suess and other Washington growers is that in the last 18 months Asian demand for their product has declined dramatically, forcing down the price. At the start of this month a bushel of wheat sold for $2.60. That's almost $2.50 lower than the price three years ago and the same price wheat was selling for in the 1950's. Unable to sell it overseas, farmers had to put this year's crop somewhere, and local grain elevators didn't have enough capacity. So they hastily constructed temporary storage, for example, this 50 yard long 1.6 million bushel pile encased in plastic and ventilated by powerful fans. Tom Jeffries is the head of the local Wheat Growers Association responsible for the storage of more than 5 million bushels. Alex McGregor is the president of the Washington State Association of Wheat Growers. ALEX McGREGOR, Washington Association of Wheat Growers: We see the impact in the farm communities throughout this region. Of the 40 farm communities that are scattered across this land, in each one you can find six, eight, ten very dedicated farm families who have had to give up farming this year. Should the trend continue, an equal number, if not more, will be lost next year. This is, indeed, a crisis. It's a very severe set of circumstances that have harmed agriculture and harmed it significantly. TOM BEARDEN: Jeffries said the economic effect goes beyond the individual farmer. TOM JEFFRIES, John's Grain Growers, Inc.: Every community including the bigger ones, all depend on the money that's generated. And as it stays down and people start to tighten up and they start to drop out of business, then that money is not going to be there, and I'm going to venture to say that, yes, it's really going to hurt the economy. TOM BEARDEN: The nearby town of St. John's is already feeling the pinch. The only women's clothing store closed recently, after operating for more than 15 years. TOM BEARDEN: Our people frightened? TOM JEFFRIES: People are frightened because we don't know what is going to happen. And when you don't know what is coming, it's a frightening experience. TOM BEARDEN: The Asian economic crisis is not just affecting this small farming community. Jim Jesernig, who heads Washington's Agriculture Department, says the whole state is feeling it. JIM JESERNIG, Washington State Department of Agriculture: We've had a huge decline in the amount of exports that we've sent out. We usually are around $1.1 billion a quarter, and that was the case in the first and second quarter of '97. It's dropped down to about $440 million in the second quarter of '98, which is over a 50 percent reduction. So that's been real tough on us. TOM BEARDEN: Jesernig and St. John's area farmers say Washington State needs help from Washington, D.C. The problems caused by lower demand are compounded by government policies. They believe they're competing with other countries that subsidize their farmers and are further hamstrung by trade embargoes where Washington uses food as a weapon. RANDY SUESS: They keep us from selling our crop commodity to a lot of foreign countries. Our competitors are just more than willing to step in and take over those markets. And then we have trouble with those competitors when we do meet them head on head to - like when we do have - like Japan - where anybody can sell to Japan right now. They can undercut is because they can more than make up for that, where we cannot sell to Iran, and I think these sanctions need to be lifted when it comes to food. No one else seems to have problems. Canada doesn't have problems selling to Iran. TOM BEARDEN: State Department Undersecretary Alan Larson issued a statement responding to the recent criticism about U.S. sanctions. He wrote: "At present, the president and the Congress have unilaterally prohibited the commercial export of food and medicine to North Korea, Iran, Libya, Sudan, and Cuba. Given the situation in those countries and the threat they pose to U.S. interest and values, the president and the Congress do not at this time support lifting or modifying sanctions on any of them. Jesernig says American farmers need at least another dollar per bushel just to break even, and he looks to the federal government to provide it. JIM JESERNIG: We have to move on a financial aid package for farmers. That's a short-term fix, though, but it's got to happen. We have to get a financial aid package, or we're going to have real good farmers go out of business, a lot of them. TOM BEARDEN: Recently, Congress and the president agreed to give U.S. farmers an additional $3 billion in subsidies. This means an extra 66 cents a bushel for Washington wheat farmers. In mid October the price of wheat shot up 70 cents a bushel because Pakistan and Egypt made large purchases, but farmers are still holding on to their wheat, hoping the price will return to its 1996 level. The Asian crisis has already forced some long-time producers of other agricultural commodities to go out of business in Washington State. The Barbee Saw Mill, a small, independent operation near Seattle, had found a very profitable niche exporting lumber to Japan. Japanese home builders use different dimensions of lumber and have different esthetic requirements than U.S. builders. The mill was converted to supply that demand. But the home building industry went South, along with much of the rest of the Japanese economy. In 1996, Japan built about 1.5 million homes. This year, only 1 million are under construction. Robert Cugini's family has been running this mill for some 40 years. TOM BEARDEN: Did the Asian financial crisis have an effect on you? ROBERT CUGINI, Barbee Mill Owner: It definitely has effect. It's been our primary market for years, and when demand is down as significantly as it is, it's got to affect the production of the plant. TOM BEARDEN: How much did it fall? ROBERT CUGINI: It fell - well, I'll give you an example - we were shipping say 200 containers a month to the Japanese - to Japan and now we're lucky if we're sending 1 a month. TOM BEARDEN: National statistics mirror Cugini's experience. In 1996, the United States exported almost 2 million board feet of lumber to Japan. This year, so far, exports total a little more than 600 million board feet. Cugini has been forced to lay off 180 workers and shut down most of the plant. Only about 15 employees remain, operating a small section of the sawmill, making custom wood components for U.S. companies. Art Hall has worked at the Barbee Mill for 23 years. TOM BEARDEN: Did you see this coming? ART HALL, Superintendent, Barbee Mill: If you'd asked me that two years ago, I'd have said, no. In the last two years, yes, I did. TOM BEARDEN: Cugini hopes to turn the wood component part of his business into a money maker and keep workers like Hall on the payroll. But he says the main sawmill probably will not reopen, forcing a majority of his workers to find other jobs or to go back to school for retraining. Meanwhile, the farmers in the eastern part of the state are starting to plant their next crop of winter wheat in hopes that it too doesn't end up in storage.