CHEAPER CRUDE or no more food! That gauntlet is being flung at OPEC members by American wheat farmers in an attempt to raise wheat prices at the same time and rate that OPEC raises oil prices. The message is: It's a barrel of oil for a bushel of wheat.
The challenge has considerable justification: While our farmers pay OPEC ever-increaseing prices for energy products (and much is used in food production), they find themselves giving those same OPEC countries bargain basement prices on wheat.
However, I'm afraid that OPEC's answer to wheat farmers will be: okay, then no more food! Unfortunately, I believe, we still need them more than they need us, at least when oil and wheat are compared.
My understanding of international markets suggests different conclusions than those reached by "food for crude" proponents. Their position was outlined in an article in The Washington Post Outlook section on July 8.
Those who believe that America could effectively tie the price of crude to wheat base their contention on conditions that exist now, namely, that the United States is presently supplying OPEC with over half of the 10 million tons of wheat imported each year.
This contention overlooks a major factor: While you can't produce oil if you don't have it, virtually every country can grow wheat or expand its production.
If this country imposes a higher and fixed price for wheat, changes in the production levels of other countries could occur. Such changes would doom either our fixed prices or our exports.
The U.S. Department of Agriculture estimates that an additional 12 to 20 percent of land would come into production outside of the United States by 1985 if we raise the market price of wheat to around $6 a bushel. Much of this land would be in Africa, Latin America and eastern Europe.
An increase in crop yields in many countries would be aided by investment in irrigation, fertilizers, mechanization and new cropping techniques - investment attracted by the promise of higher returns.
We must also take into account the realization that four-fifths of the world grain output is consumed in the countries in which it's grown. If we were successful in raising the worldwide price to $6 a bushel, other countries would be encouraged to export some of that four-fifths, cut world prices and undersell us internationally.
Thus, I fear American farmers would suffer from consequences that are being overlooked in an unduly optimistic analysis of the "food for crude" proposal. In actuality, it's likely they would see their foreign markets dwindle. Also, broad government acreage and production controls would need to be imposed to enforce the fixed price, an extent of government control over farmers I find hard to believe they really would want.
Meanwhile, the present world grain market, now expanding rapidly in both price and demand, would be undermined. So would our balance of trade and the value of the dollar.
"Food for crude" proponents have little economic leverage for another reason. In 1978, 64 percent of the oil imported by the United States came from four OPEC nations, Saudi Arabia, Libya, Nigeria and Algeria. This represented $17 billion worth of petroleum imports.
However, these four countries imported only 1.8 million tons of wheat from us. That amounted to a value of $240 million, only 1.4 percent of the amount of our oil imports.
The United States grows only 15 percent of the world's wheat supply; total wheat production worldwide in 1978 was 437.6 million tons. The amount imported by those four OPEC countries is just four-tenths of one percent of world production. They could buy elsewhere. Our leverage against them with grain is not impressive.
We must keep in mind, too, the potential part which could be played by Russia. The Soviet Union is one nation that could upset any pricing system devised by a U.S. grain board. In a normal crop year, the U.S.S.R. grows about twice as much wheat as does the United States. In the Soviet Union, however, wheat is used as animal feed as well as a food grain. If the U.S. raised its price to $6 per bushel, the U.S.S.R. could easily undercut that price by selling abroad that portion of wheat normally used for feeding livestock and then importing corn or sorghum to use instead.
If we were successful in raising the worldwide price to $6 a bushel, a cruel tax would be levied upon the hungry and poor of the world, a similar burden to that they're currently suffering from OPEC prices.
For these reasons, I doubt our efforts to control OPEC through our wheat would be successful. We do have potential strong leverage against OPEC with respect to their defense and technological needs.
However, the most effective route we can pursue to help our wheat farmers is to work to develop new markets overseas for our grain. This path would assure us of a consistently high demand from one year to the next.