CABINET COUNCIL ON ECONOMIC AFFAIRS - THURSDAY, SEPTEMBER 16, 1982

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84T00109R000100050003-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 23
• Document Creation Date: December 20, 2016
• Document Release Date: July 12, 2007
• Sequence Number: 3
• Publication Date: September 15, 1982
• Content Type: MEMO

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EXECUTIVE SECRETARIAT
Routing Slip
TO:
ACTION
INFO
DATE
INITIAL
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DCI
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EXDIR
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D/ICS
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DDI
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DDA
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DDO
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DDS&T
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Chm/NIC
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GC
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IG
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Compt
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D/Pers
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D/OEA
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C/PAD/OEA
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SA/IA
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A0/DCI
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C/IPD/OIS
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 DA' E: 9-15-82
SUIJECT Cabi
NUMBER: 0 7 7 4 6 9 CA
DUE BY:
net Council on Economic Affairs - Thursday, September 16, 1982
ACTION
ALL CABINET MEMBERS
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Education
Counsellor
OMB
CIA
UN
USTR
FYI
ACTION
Baker
Deaver
^
O
~
Clark
Darman (For WH Staffing)
0000'
t9
C~
Harper
ffoo~
i~
Jenkins
^
Kud l caw
^
Wheeler
^
^
13
13
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CEA
CEQ ^ ^
OSTP 0 ^
^ ^
O ^
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THE WHITE HOUSE
WASHINGTON
CABINET AFFAIRS STAFFING MEMORANDUM
FYI
CCCT/Gunn ^ ^
CCEA/Porter IY -^
CCFA/Boggs ^ ^
CCHR/Carleson ^ ^
CCLP/Uhlmann ^ ^
CCNRE/Boggs ^ ^
REP ARKS: The Cabinet Council on Economic Affairs will meet on
Thursday, September 16 , at 8:45 a.m. in the Roosevelt Room.
The agenda and paper on the Economic Impact of U.S. Agricultural
Exports in Value Added Products are attached. The paper on
the Flat Rate Tax is forthcoming.
RET
URN TO: ^ Craig L. Fuller 1 Becky Norton Dunlop
Assistant to the President Director, Office of
for Cabinet Affairs
Cabinet Affairs
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49 - 0
September 14, 1982
MEMORANDUM FOR THE CABINET COUNCIL ON ECONOMIC AFFAIRS
FROM: ROGER B. PORTER,f
SUBJECT: Agenda and Paper for the September 16 Meeting
The agenda and paper for the September 16 meeting of the
Cabinet Council on Economic Affairs are attached. The meeting
is scheduled for 8:45 a.m. in the Roosevelt Room.
The first agenda item is a review of the economic impact
of U.S. agriculture exports in value added products. Secre-
tary of Agriculture Block has requested the opportunity to
brief the Council on this issue and has prepared a short paper
and series of charts and tables as background material which
is attached.
The second agenda item is the flat rate tax. The Senate
Finance Committee is scheduled to hold three days of hearings
later this month on fundamental tax reform and on the large
number of flat tax and other proposals that have been intro-
duced in the Congress.. The.Department of the Treasury is
scheduled to testify on September 27. This agenda item will
focus on the position that the Administration should take on
this issue. The Council is also scheduled to continue discus-
sion of this question at its Tuesday, September 21 meeting.
No paper will be distributed on this agenda item in advance
of the Thursday, September 16 meeting.
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THE CABINET COUNCIL ON ECONOMIC AFFAIRS
September 16, 1982
8:45 a.m.
Roosevelt Room
le Economic Impact of U.S. Agriculture Exports in Value Added
Products (CM#293)
2. Flat Rate Tax (CM#294)
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DEPARTMENT OF AGRICULTURE
OFF;CE OF THE SECRETARY
WASHINGTON, D. C. 20250
September 14, 1982
FROM: John R. Block
Secretary of Agricultur
SUBJECT: High Value Agricultural Exports
Attached is the background material for the discussion on high value
agricultural exports scheduled for the September 16, CCEA meeting.
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TRADE IN HIGH VALUE FARM PRODUCTS
AN OPPORTUNITY FOR THE 80's
1. A number of developments over the late 1960's and the 1970's
(population and income growth) led to the development of two
world markets for farm products--the traditional bulk market for
low value, unprocessed products (LVP) and a second market for
high value, generally processed products (HV?). By 1980, the
second market for processed products grew to be larger than the
bulk market that traditionally dominated agricultural trade.
2. The two markets are distinctly different and the major
characteristics of the markets--sources of growth, grog th
prospects, pay-off on sales, and benefits to the economy outside
the farm sector--suggest the HVP market has a higher pay-off for
exporters.
3. U.S. performance in the HVP market in the 1970's was good but not
as strong as the U.S.'s comparative advantage in the production
of inputs and cost efficient proce:3sing sector would suggest.
The end result of the outstanding performance of the U.S. in the
LVP market and wearer per-Form ante in the HVP market has been
strong growth in our volume share of world trade but slippage in
i
our Value s ar inters n l _i_'CC ._ 1.Cn In .'.S. cap rt3 also
appe r to have incr eased .
/ The U.S.'s p =for-- Ce in the HVP export market =elates to policy,
forces a.: play here in the U.S. but more importantly to the
strong push by many of the other developed Hvi exporters to
maximize their share of the market through the use of e ;port
subsidies. The large-scale intervention of the EC in the market
through ~3 billion in ex,oort subsidies makes the Hv'P market one
of the most political in the world.
5. Improving the U.S.'s performance in the HVP half of the market
will require a substantial investment of tine and money centered
on a more aggressive 11`r? marketing stance. This more aggressive
marketing stance will have to be reinforced by considerable trade
policy pressure to prevent the other HVP exports--particularly
the EC--from offsetting any improvement in the U.S's competitive
position. The pay-off on any investment in more aggressive R`VP
marketing is likely to be high enough in the 1980's in terms of
foreign exchange earnings, employment, and G"h,P to warrant the
U.S. move as soon as a comprehensive program can be mapred out
and funding; allocated.
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ARK FOR FAR
(1980 DATA)
Semi-
Processed
($60 Bil.)
c
$
12
0
Billion
Fresh Fruits
H
ig
h
Value
$110 Billion
And
U
n
pro
cessed
Rubber,
Vegetables
(
$25
Bil.)
Raw
Cotton,
Materials
And Tobacco
Dairy Products
Hi
gh
ly
($25 Bil.)
And Food
Pr
oc
essed
Preparations
(
$
35
Bit.)
Flour,
Oilseed
Products,
And Meats
High Valued
Products (HVP)
D
Bulk
Food
Products
($85 Bit.)
S
f Grains
And Oilseeds
Low Valued
Products (LVP)
0
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CHARACTERISTICS OF HVP AND LVP MARKETS
LVP
HVP
-INCOME-UNRESPONSIVE - INCOME-RESPONSIVE
(INELASTIC) (ELASTIC)
- PRODUCT ONLY - PRODUCT AND SERVICE
- VOLUMN GROWTH - UNIT PRICE GROWTH
- FARMERS BENEFIT - FARMERS AND PROCESSORS BENEFIT
0
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INCOME ELASTICIES
(IMPORTANCE OF AFFLUENCE AS DEMAND DRIVER)
HVP
MEATS
CHEESE
CEREAL PREPARATIONS
FRESH FRUITS & VEGS.
PREPARED FRUIT & VEGS.
VEGETABLE OILS
. 35 TO . 75
. 40 TO . 70
.50 TO 2.00
45 TO .65
60 TO 1.20
20 TO .60
WHEAT
RICE
LVP
-. 20 TO . 25
-. 20 TO . 35
COARSE GRAINS -. 15 TO . 15
COTTON
TOBACCO
JUTE
0
-. 10 TO . 20
-.10 TO .70
-. 10 TO .20 ?
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THE SERVICE COMPONENT:
(GROWTH IN HVP AND LVP UNIT VALUES)
1970
$/TON
1980
$/TON
1980/1970
GROWTH RATE
CORN
70
140
7.5
WHEAT
75
175
9.0
O I LMEAL
85
215
9.5
0
FLOUR
90
285
12.0
VEGETABLE OIL
290
670
9.0
REFINED SUGAR
120
475
14.5
WINE
260
975
14.0
POULTRY
670
1, 470
8. 5
0
BUTTER
730
2,465
14.0
BEEF
910
2,590.
11.0
CHEESE
935
2, 905
12. 0
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SOURCES OF GROWTH IN THE 1970'S
HVP LVP
STRONGEST GAINS IN UNIT PRICES STRONGEST GAINS IN TRADE VOLUME
EG...MEAT 11% PRICE GAIN EG...GRAIN 7% VOLUME GAIN
6% VOLUME GAIN 7.5% PRICE GAIN
17% TOTAL GAIN 15% TOTAL VALUE
GAIN
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NON-FARM B
NEFITS OF HVP EXPORTS
(1980 DATA)
I*
EXPORT RETURNS
FARMER RETURNS
PROCESSOR RETURNS
CEREALS
$ 185/TON
$148
$37
(20%)
MEAT
$1470/TON
$880
$590
(40%)
CHEESE
$2900/TON
$600
$2300
(80%)
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U.S. Agricultural Export Performance Indicators
U.S. Share of the World Agricultural Market
by volume
by value
25%
20%
39%
18%
Agricultural Export Unit Values
World Average
$210
$675
U.S. Average
$170
$265
Interannual. Variability 1/
World Trade Volume
3%
4%
World Trade Value
5%
8%
U.S. Trade Volume
8%
9%
U.S. Trade Value
9%
14%
1/ Measured as the standard error of the regression taken from time
series regression analyses of data for the 1960's and 1970's.
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HOW HVP EXPORTERS EXPANDED TRADE
IN THE 19701S
PRODUCT CONCENTRATION
TECHNIQUE
I*
U.S.:
SEMI-
HOW:
LIMITED HVP PROMOTION
PROCESSED
(54%)
EMPHASIZING SEMI-PROCESSED
BRAZIL:
SEMI-
HOW:
AGGRESSIVE PROMOTION
PROCESSED
(90%)
EMPHASIZING SEMI-PROCESSED
THROUGH TAXES AND SUBSIDIES
0
EC:
HIGHLY
HOW:
AGGRESSIVE MARKETING WITH
PROCESSED
(60%)
PRODUCER AND EXPORT SUBSIDIES
AS WELL AS EXPORT PROMOTION
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Table 1--Total EC Agricultural Exports and Export Refunds, 1980 l/
: Agricultural exports
a
a Refunds as % of
a SJTC
a a To
a Export
a export sales to
a code 11
a Total a
Non-EC
a refunds
a Non-EC countries
a
: countries ; 2/
a
-----------
$ Mil
Grains and preparations
04
10,054.0
4,545.1
1,697.4
37.3
Milk and milk products
a
02
9,977.8
4,065.7
3,823.1
95.4
Agricultural oil and fats
4
2,696.0
1,008.6
5.2
5.1 ?
Sugar and preparations
a
06
3,635.1
2,606.2
398.5
15.3
Beef and veal
a
0111
4,458.8
901.1
996.2
110.6
Mutton and lamb
a
0112
299.4
17.4
--
--
Pork
a
0113
2,382.1
232.6
127.5
54.8
Eggs and poultry meat
a
025
1,690.5
549.1
119.0
21.7
Fruits and vegetables
a
05
7,837.0
1,581.0
57.5
36.4
Wine
a
1121
3,138.7
1,279.1
36.8
28.8
Tobacco, unmfg.
a
1210
207.7
64.4
6.3
9.8
Fish and preparations
a
03
2,514.5
720.9
15.9
2.2
Processed agr. products
a
--
15,278.6
6,080.9
308.0
5.1
not specified above 3/
Other (residual)
a
a
--
10,217.3
2,777.9
--
--
Total
--
74,387.5
26,433.0
7,591.4
28.7
1/ 1980 is the most recent year for which detailed information on export subsidies is
available.
2/ Excludes small payments on trade between member countries.
3/ Includes (07) coffee, tea, cocoa, spices; (08) animal feed; (09) misc. food pre-
parations; (21) hides and skins; (22) crude animal and vegetable materials; and (26)
textile fibers.
?
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Table 2--Relationships Between Prices and Subsidies For Commodities Exported from the EC
(1981, unless otherwise specified)
:
Exporter,
importer
Units
EC ;
market :
price a/ ;
Export
refund
;Refund as percent
age of wholesale
price
Poi
lltry
EC Average,
?/lb.
55.6
5.8
0% Broiler)
Middle East b/
France,
Saudi Arabia
t/lb.
58.8
7.6
13
Nor
fat dry milk
Netherlands,
$/MT
1,589 d/
859
5-27%)
Chile c/
Bu
tter (85% fat)
Netherlands,
Mexico c/
$/MT
3,578
974
Ch
ese
Denmark
Iran & U.S.
$/lb.
1.10
.27
24
Pi
eat
Denmark,
Japan e/
$/MT
2,232
306
Be
f carcass
W. Germany,
$/MT
2,222
1,852
:
E. Europe f/
Br
ead wheat
France,
Egypt #/
$/MT
226
66
Wh
eat flour
France,
Egypt
$/MT
738 h/
77.25 1/
E
arley
France ?/
Poland
$/MT
193
39.75
T2
bee wine
44 n/
7
-
-Type RI k/
France
United States
m/
2.58
1.1
-
-Type AIII
Germany
$/hl.
79.86
6.16
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EXAMPLE..
POULTRY EXPORTS TO SAUDI ARABIA
EC POULTRY
(1980 DATA)
U. S.
0
POULTRY
EC PRODUCTION COST
EC EXPORT SUBSIDY
72.4 CENTS
12.4 CENTS
EC PRICE
60.0 CENTS
U. S.
PRICE
62.0 CENTS
EC SALES TO SAUDI ARABIA:
U.S.
SALES TO SAUDI ARABIA:
90,000 TONS
12,000 TONS
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U.S. HVP EXPORT EXPANSION STRATEGIES
ADOPTION OF AN EC HVP
PROCESSING AND EXPORT
SUBSIDY PROGRAM AND
TIGHTER RELTRICTIONS
ON HVP IMPORTS INTO
THE U. S.
MORE AGGRESSIVE HP MARKETING BASED ON
REFOCUSED/EXPANDED TRADE PROGRAMS
CPL 480, CCC EXPORT CREDIT. AND MARKET
DEVELOPMENT) AND INCREASED TRADE POLICY
PRESSURE TO MINIMIZE SUBSIDIZED
COMPETITION FROM ABROAD
0
0
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V
R
0
T FOR T I
(Slower Growth But Still The Leading Trade Sector)
0
REST OF WORLD
$25 Bil.
:.:?:. $2.5 Bil.
1970
1990
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LABOR REQUIRED TO EXPORT SELECTED FARM
PRODUCTS (1980 DATA)
Employment Recuir?d to Export 1.000 tone of Feedetuffe oea
Man ywar? of labor
9. 0 r
1, 000 tone of oor-n 3. 1 man years
500 tone of eoybeana 2.9 man yearn
395 tone of soybean
moo l 3.5 man years
335 tone of poultry 5.6 man years
250 tone of pork 6.8 man years
300 tone of paoka9ed
meats 8.5 man years
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Employment to Export 1,000 tone of Wheat aec
Mon yeare of labor
1,000 tone of wheat 4.5 man yeare
740 tone of flour 5.8 man yeare
650 tons of macaroni 9.0 man yearn
600 tone of bakery
producte 11.7 man yeare
Flour Maoaroni Bakery
Produote
?
?
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GNP GENERATED IN THE EXPORT OF SELECTED FARM
PRODUCTS (1900 DATA)
GNP Generated in Exporting 1.000 tone
$1, 000 in GNP
1800 -
1,000 tone of corn $ 220,000
500 tone of soybeans $ 260,000
395 tone of soybean
meal $ 390,000
335 tone of poultry $ 825,000
250 tone of pork $ 1,200.000
300 tone of packaged
meats $1.750,000
?
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GNP Generated in Exporting 1,000 tone of Wheat aec
$1. 000 in GNP
1400 r-
1200
Wheat Flour Maoaroni Bakery
Produote
1,000 tone of wheat
$ 295,000
740 tone of flour
$ 390,000
650 tone of macaroni
$1,185,000
600 tone of bakery
produote
$1,350,000
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