Greenspan: Exports Are Agriculture’s Savior

February 24, 2000

Federal Reserve Chairman Alan Greenspan told the Senate Banking Committee the most effective way to rescue farmers from low prices and high costs is through increased exports. Despite a "very dramatic reduction" in the importance of oil in the U.S. economic production, he said, oil still is a "pervasive enough force" that if prices are high enough, economic growth is affected significantly.

"The inventories at refineries in the United States and indeed pretty much throughout the rest of the world have been drawn down very significantly," said Greenspan. "In some areas of our petroleum industry we’re running almost on fumes. And the crucial importance of this ... is when you get inventories to exceptionally low levels, there is no buffer."

On the flip side of that is if "you get an unexpected surge in demand, you don’t get an incremental price increase, you get a huge surge. And one of the things we have seen in the United States, even as we have experienced a very dramatic reduction in the importance of oil in our economic production, it’s still a large enough and pervasive enough force within our economy that should we get one of these very severe spikes, it would have a major negative impact on economic growth."

For agriculture, he added, the problem "clearly" is two-fold: an "extraordinary" increase in productivity and export expansion. Productivity in agriculture is "even more impressive" than the "awesome increases ... in a nonfarm area." And the United States depends on exports to maintain high production.

"Clearly the Asian Crisis in 1998 had a major negative effect on agricultural supplies, and it’s had an obvious, very major impact on crop prices," Greenspan said. "The longer term outlook for agriculture, in my judgment is export markets. And the more we can open up markets abroad ... it strikes me as the most important thing that we can do to keep a viable, very productive agriculture" in operation.