Contents -

A. World food situation
B. International commodity problems
C. International investment and financing facilities
D. Annual reports of member governments

The Conference has examined the documentation submitted for the annual Program Review. It commends these documents to the attention of government as giving a comprehensive survey of condition.

Situation Highlights

Production

According to the picture presented by the documentation, total world agricultural production has regained prewar levels but, population having increased about 10 percent, the supplies available per person are still below prewar. At the projected rate of progress it is estimated that for the world as a whole the supply per person will not reach prewar levels for some six or seven years. In the Far East and Latin America it will take even longer. [Food and Agricultural Targets and Outlook for 1950/51 (C49/23), Tables 3 and 4.]

The composition of the food supply is nutritionally inferior to prewar, lower production of protective foods not being compensated by higher production of grains, potatoes, and sugar. The supply of protective foods will take even longer to recover than that of energy foods.

The war not only caused greater destruction than the First World War but also far greater dislocation. While considerable progress has been made in recovery from the effects of destruction, the dislocation has raised problems of so formidable and intractable a kind as greatly to retard the expansion of food production.

While agricultural production in the Far East and Europe has not vet fully recovered to the prewar level, in North America production expanded greatly to meet the larger home market and the urgent needs of war-damaged countries. The expansion was based largely on increased per hectare yields but also, in the case of wheat in the United States, on increased harvested area. (The State of Food and Agriculture, 1949.) It has involved some departure from sound farming and conservation practices which it will be desirable to correct.

Consumption

Consumption disparities among nations have become magnified. Some of the best-fed nations have become better fed, some of the worst-fed worse fed. The proportion of the world's population in countries with an average daily diet of 2,000 calories or less has increased from about one-fifth to about one-third. At the other end of the scale, of the four countries outside Europe which before the war were above the 3,000-calorie level, three have increased both their calorie and their protein intake per person. (State of Food and Agriculture, 1948 and 1949.)

Nevertheless in a number of countries the consumption disparities among income groups have been reduced, because of (a) increased food supply, (b) augmented purchasing power, or (c) rationing, special food distribution programs, food subsidies, and like measures. Although in most countries the level of consumption of the lowest income groups has not improved, in some countries there has been an improvement compared with prewar.

International Trade

In the international trade situation, the most significant feature is the massive increase in the share of the United States of America and to a lesser extent of Canada in world exports. Their share in world food exports has risen in the past ten years from less than one-seventh to about two-fifths of the total; at the end of the war their share was even higher. The United States' share in world exports of bread grains rose from about one-half before the war to close to one-half since the war.

The volume of food exports of the rest of the world (other than the United States of America, Canada, and Cuba) has fallen some 40 percent and is recovering only slowly. In the Far East the decline in trade has been particularly severe. In some of these countries war damage has still to be made good, while in others internal civil disorders have retarded the resumption of production for export. Many are underdeveloped countries in which industrialization is promoting a needed increase in food consumption, leaving a smaller amount for export.

While the world is relying more heavily on dollar countries for both agricultural and industrial goods, the means of paying for them have decreased. Many of the food-deficit countries have lost important direct sources of dollar earnings. Moreover, a large part of the dollars formerly earned by them from the underdeveloped countries are no longer available, since many of these latter countries are either just balancing their dollar trade or in some cases even running dollar deficits in connection with their industrial development.

Out of all this has grown a situation of inherent instability in which even the present inadequate consumption levels of the food-deficit areas are precariously held. This basically unstable position has been maintained thus far by (a) depletion of the gold and dollar reserves of the soft-currency countries, and (b) loans and gifts by the United States of America and Canada oil an unprecedented scale. [Interim Report on Trends in International Trade in Agricultural Commodities (CL6/4), Appendix Table 6.]

Any sudden fall in the dollar earnings of the food-deficit countries or in the volume of United States gifts and loans might precipitate a food shortage in those countries and a surplus-disposal problem in North America. Experience early in 1949 showed how sensitive those dollar earnings (particularly those from United States merchandise imports) are to any fall in United States industrial activity and consumer purchasing power.

Thus, efficient production in the soft-currency and underdeveloped area must be maintained and expanded to bring about a more balanced agricultural economy in the world. At the same time, in the face of extremely low consumption levels and exchange difficulties in many countries of this area, means must be devised to assist North America to maintain a high level of efficient agricultural production and a large volume of agricultural exports.

Current Policies of Governments

Government agricultural policies are all important force shaping the world food and agriculture situation. The following paragraphs bring out some of the common tendencies in these policies (as reported in the documentation) in order that each government, developing its policy separately in the light of all the factors confronting it, may give proper weight to the collective impact of the agricultural policies of all the members of FAO.

A number of countries report the continuation or initiation of programs for improving the diet of vulnerable groups and poorer classes. Many more governments need to give attention to this matter, especially in countries where over-all food supplies will for some time remain inadequate and where, therefore, the most effective utilization of them acquires particular importance.

Most countries with relatively inadequate per caput consumption envisage an expansion of their agricultural production, but apparently in most cases not an expansion of sufficient magnitude to remedy substantially their nutritional problems in the near future.

Most underdeveloped countries envisage reduced imports and expanded exports of food and agricultural products, even where food consumption is low. This is related to their desire to have the maximum possible quantity of foreign exchange available for purchases required in connection with industrialization and general economic development, and to their general inability to export any large quantity of products other than food and raw materials.

Pre-Conference Regional Meetings in Latin America, the Near East, and the Far East emphasized that governments may have to give greater attention to (a) production of more nutritionally valuable foods for domestic consumption, (b) diversification from one or two export crops to a wider variety of products, (c) devoting more land to the production of crops, such as roots and tubers, having a higher calorie output per hectare than bread grains, (d) development of extension and other government services for agriculture, (e) policies of soil conservation and improvement, and (f) provision of adequate storage facilities for food and agricultural commodities.

The majority of the more developed countries have policies designed to reduce food imports and expand food production. Most though not all of these countries are driven to these policies by their balance-of-payment and other postwar difficulties. The reports of the regional meetings at Beirut, Rome, and Singapore indicate that the persistence of international disequilibrium may push some countries farther along the road toward self-sufficiency at increasing economic cost.

A few of the more developed countries with actual or imminent agricultural surpluses have initiated action to reduce their output of export agricultural products. Thus, some countries are embarked upon a policy of restriction of the output which they cannot sell while underfed countries are restricting imports which they need but cannot buy.

In the light of the reported agricultural "programs" of various countries there appears an important commodity dilemma, namely, that for most farm products the intentions to export substantially exceed the intentions to import. Assuming implementation of the programs and the maintenance of present agricultural prices and other economic factors, this situation might arise for bread grains, coarse grains, rice, sugar, fats and oils, and fish. By contrast projected exports might be less than projected imports of coffee, lumber, and wood pulp.

Questions for Particular Consideration

The attainment of desirable nutritional standards on a durable basis in the underdeveloped countries of the world must be achieved by full mobilization of the agricultural resources of these countries for the expansion of production. The primary responsibility for achieving this must rest on national governments and national action.

Such expansion of agricultural production cannot be achieved and sustained in many countries without simultaneous balanced development of industry with a view to stimulating purchasing power.

In connection with agricultural expansion, the extended Technical Assistance Program, recently commended by the Economic and Social Council and the General Assembly of the United Nations, acquires special significance. More than any other program of international aid, it can transform the lives of hundreds of millions of disadvantaged peoples. To take full advantage of the program, governments of underdeveloped countries will need to examine the difficulties which impede the expansion of food production and prepare projects for overcoming them. In the preparation and execution of such projects, including notably agricultural extension services, better use and conservation of soils, and improvement of crop and livestock production, Technical Assistance can be of very great value.

In many of these countries governments may need to divert to agriculture a larger proportion of their available financial resources. Drainage or irrigation works, land clearance or afforestation, livestock improvement and mechanization all require large sums of money. So do equally important items which indirectly benefit agriculture, such as the improvement of transportation and of storage facilities. Because the capacity of the low-income countries to save is low and the need for capital investment high, domestic capital will need to be supplemented in many cases by foreign capital. In some cases the availability of foreign loans for the purchase of production goods will enable more of a country's foreign exchange to be used for the purchase of needed consumer goods, including food. (See "Technical Assistance for Economic Development.")

To expand agricultural production, greater attention needs to be given to the problem of the transfer of population, including temporary agricultural workers, from areas where labor is surplus to areas where labor is scarce.

Unless a concerted effort is made to restore trade and payment equilibrium, the persistence of present difficulties threatens to reverse the trend toward freedom from want of food. It would compel some of the largest surplus-producing countries to restrict their agricultural output and deficit countries to expand their production at any cost. Solution of these difficulties must be sought in two directions.

The first line of attack comprises all measures which increase the dollar earnings of deficit countries, including -

These measures for achieving more balanced international economic relationships presuppose the maintenance and, where possible, the expansion of economically efficient production in the soft-currency area, expansion of the exchange of goods between the countries of that area, and avoidance of policies of self-sufficiency in products which could be so exchanged. Further, they assume necessary modifications of national commercial and fiscal policies with a view to stimulating the importation and consumption of agricultural products.

The second line of attack is to encourage a large and regular flow of investment from the hard- to the soft-currency area. While for development purposes international loans are generally speaking most urgently required in low-income countries, the current balance-of-payment difficulties would be eased whatever parts of the soft-currency area obtained such loans.

At the same time as steps are being taken to deal with the balance-of-payment problem, serious consideration should be given to current national agricultural price policies and to appropriate price adjustments reflecting technological improvements -

It cannot be foreseen how successful these various measures, vigorously undertaken, will be in restoring trade and payments equilibrium. To the extent that they fail, the countries which now rely heavily on dollar sources for supplies of food and other products would be forced to greater self-sufficiency by expanding production, even at high cost, within their own territories or in other parts of the soft-currency world. Such expansion generally must be initiated well before the products are required because of the time involved in consummating agricultural development projects, especially in hitherto untried areas. It would involve considerable new investment, in many instances in projects of relatively low productivity.

Even if the proposed remedial measures ultimately succeeded in closing the dollar gap, this would take time. Meanwhile, agricultural surpluses threaten to emerge in the hard-currency area. If restriction of production cannot be advocated, both for humanitarian and economic reasons, other policies will have to be considered. Various measures to stimulate a larger internal consumption might dispose of some of the surpluses. Some might be transferred to needy countries through special forms of financing, either by unilateral action or multilaterally with the consent of all interested parties.

The various measures discussed here might together contribute powerfully to the achievement of a viable equilibrium in the world pattern of trade and payments and of production of traded goods. The great difficulties of the situation make it necessary, however, for these corrective measures to operate in the presence of the numerous other measures (such as import quotas, exchange controls, bilateral trade agreements, export subsidies, gifts, price or income supports, and measures of rural social policy by which governments deal with the inescapable short-run problems associated with major dislocations). To employ these other measures to prevent immediate catastrophe and yet to apply them with sufficient restraint not to inhibit progress toward the organization of a world of multilateral trade and convertibility - a world in which the pervasive price mechanism is allowed to play a useful - role calls for the most understanding cooperation of governments in an effort to fit their policies together into a pattern that will best serve the common good.

In the light of this review the Conference adopts the following recommendations:

Acceleration of Agricultural Progress

The Conference recommends -

Study of Prices

The Conference recommends -

Manpower Problems

The Conference -

International Commodity Clearing House Proposals

The Conference notes that the proposal for the establishment of an International Commodity Clearing House as contained in the Report on World Commodity Problems (C49/10) is addressed primarily to the problem of surpluses in hard-currency areas and deficits in areas which lack convertible currency. This aspect of surpluses is one phase of the general international trade and financial disequilibrium, to the solution of which national and international efforts are being directed. It is essential, in judging any proposal for dealing with the commodity surplus problem, to consider whether it advances the achievement of multilateral trade and general convertibility of currency.

Short-Term Trading Functions

The ICCH proposals in the present situation of international trade involve the accumulation of inconvertible currency through a new international organization to the credit of the selling country. This accumulation, on a large scale, would represent additional indebtedness by the deficit countries, involving the burden of eventual repayment in terms of additional exports of goods and services. It would have the effect of delaying general convertibility beyond the time when this might otherwise be accomplished.

The original Report (C49/10) contemplated that inconvertible currencies would be held unused until general convertibility is restored. It has been suggested in general discussion, however, that the disadvantages of such accumulation could be mitigated to the extent that these currencies could be used for purchases in the soft-currency area before the restoration of general convertibility. This would, however, in the main, be for the purchase of commodities which would ordinarily earn hard currency, and would thus prejudice individual efforts to secure equilibrium on current hard-currency account.

The proposals also involve sales at concessional prices in terms of hard-currency payments through an international organization. In view of the hard-currency shortage, any purchases of additional quantities of a surplus commodity could not take place on any appreciable scale without prejudicing the efforts of the importing countries to achieve equilibrium on hard-currency account.

The proposals both for sale in inconvertible currencies or at concessional prices suffer from another fundamental weakness. They assume that particular transactions between two countries in any commodity will be additional to the "normal volume of trade" in that commodity. It would be administratively very difficult to determine the "normal volume of trade" in each case, and, in practice, such transactions might prejudice the normal trade in particular commodities and the interests of other exporting and importing countries.

The creation of any new international organization is undesirable unless it can be shown to be essential to carry out functions that cannot be performed equally well by an existing organization or by member governments. It is clear that the financial functions proposed for the ICCH could be performed by the governments directly involved.

Long-Term Trading Functions

The Report also envisaged certain longer-term functions for ICCH, one of the most important being the holding of buffer stocks after general convertibility is achieved,

There are two principal objections to this proposal. In the first place the Conference shares the view of the Preparatory Commission on World Food Proposals that, where buffer stocks are appropriate, they "should be nationally held, but administered under internationally agreed rules." Furthermore, where any international co-ordination in regard to buffer stocks is desirable, it should in general be related to a commodity-by-commodity approach and to individual intergovernmental commodity agreements.

The Conference -

Suggested Approach to the Problem

For the purpose of considering possible approaches to the solution of the surplus problem in the field of agriculture, it is convenient to consider separately those difficulties which are more or less directly related to the general currency disequilibrium now prevailing, and all other difficulties. It is recognized, however, that in practice the surplus in most cases would arise from a combination of both.

Difficulties Relating to General Currency Disequilibrium

Surpluses which are a reflection of international financial disequilibrium either exist or are in prospect. They present a serious problem. This is, in fact, the problem to which the authors of the ICCH proposals mainly directed their attention. The Conference has been unable to envisage any international financial or trading mechanism designed to deal solely with the over-all commodity problem which could provide a solution not subject to one or more of the objections expressed to the ICCH proposals. Within the framework of individual commodity agreements, however, the exporting and importing countries may be able to devise financial provisions that are not subject to the same objections.

In view of the difficulties of general international action the governments of the countries holding the surpluses may decide to supplement financial action already being taken by specific efforts to move surplus supplies to needy areas.

Individual -action by governments to move surpluses from hard-currency countries to soft-currency countries would almost inevitably take one or some combination of the following forms: long-term credits; concessional prices; free gifts. Whichever method is adopted in individual cases, it is important that the interests of other exporting and importing countries be carefully considered. For this purpose it is desirable that there be appropriate international consultation.

Other Difficulties

The assessment of the commodity surplus problem in so far as it arises from causes other than international financial disequilibrium requires the complete analysis of a series of interrelated factors. While recognizing that the surplus problem is likely to become progressively more important, the Conference finds it impossible to offer a complete analysis of all the factors, nor does it believe that there is a specific remedy that can be applied to all commodities. The Conference recalls the recommendation of the Preparatory Commission on World Food Proposals which was endorsed by the Third Session of the FAO Conference and calls particular attention to Items 3 - 6 and 8 of this resolution:

The principles governing international commodity agreements and the mechanism for concluding them are set out in Chapter VI of the Havana Charter of the International Trade Organization, but the Conference notes with regret that this Charter has not yet come into force. Meanwhile, some of the functions proposed for ITO in this field have been delegated by the Economic and Social Council of the United Nations to the Interim Co-ordinating Committee for International Commodity Arrangements. Although ICCICA does not possess all the powers of ITO, it is nevertheless in a position to promote discussions on commodity problems among governments, to assist in the formation of study groups, and in the conclusion of commodity agreements. One of the three, members of ICCICA is a representative of FAO, and the Conference suggests that FAO make greater use of ICCICA for securing action on the surplus problems reported by its member governments.

The Conference has considered the possibility that, pending the organization of ITO, some new body might undertake the responsibility of stimulating action on commodity agreements, but has come to the conclusion that with ITO in prospect it is unlikely that any new body could perform any function not already covered by ICCICA and FAO under their existing powers.

In these circumstances, the Conference suggests to the Economic and Social Council of the United Nations that greater resources be made available to ICCICA for the more effective discharge of its responsibilities.

Proposed New Machinery

While existing machinery should be used in the initiation of intergovernmental commodity agreements for the solution of longer-term surplus problems, the need exists for some additional mechanism in relation to the surplus problem arising from balance-of-payments disequilibria, in so far as an international agreement for the commodity concerned does not exist or its provisions do not deal with this aspect of surpluses.

The Conference therefore -

In the case of any proposal relating to a commodity which is subject to an international commodity agreement and for which an inter national commodity council exists, the Committee shall notify the council concerned. In arriving at recommendations, the Committee shall consider the views and recommendations expressed by the commodity council concerned, and any report of the Committee shall include a full statement of such views and recommendations. In the case of commodities for which study groups or other intergovernmental commodity bodies have been set up, such bodies should where practicable be consulted.

When the Committee proposes to make recommendations it should consult with the International Monetary Fund as to their possible balance-of-payments effects. In arriving at recommendations, the Committee shall consider any views and recommendations expressed by the International Monetary Fund, and ally report of the Committee shall include a full statement of such views and recommendations.

As to composition and procedures,

The Conference recommends -

The Conference has studied the Report on International Investment and Financing Facilities (C49/16) and a supplementary statement by the International Bank for Reconstruction and Development (C49/16 Ad.1).

The Conference appreciates the close cooperation in the preparation of this report between FAO and other UN agencies concerned with investment and financial problems and the effective way in which the problem of agricultural development has been linked up with the problem of finance.

While some highly developed countries already have high national income and high labor productivity per caput, many other countries have very much lower per caput income and production. Although the countries with high income can readily save substantial amounts for investment, the population in the others need almost all they produce merely to cover their bare existence. As a result, the differences in absolute terms are very striking, the comparison being between annual savings on the order of $100 or more per caput in highly developed countries but $5 or less in many underdeveloped countries. Whereas highly developed countries are increasing their per caput output and raising their living standards, many less developed countries can make little or no progress in this direction. Because of the inability of the less developed countries to save and invest enough to increase their efficiency and expand their per caput production, there is danger of the gap between developed and underdeveloped countries becoming greater and greater, with serious economic and social implications. If FAO is to achieve its objectives, the small domestic savings in the underdeveloped countries must be supplemented with investment from abroad.

Substantially increased investment, both domestic and international, will be required to make technical aid under the expanded Technical Assistance Program fully effective. An adequate portion of technical assistance should be devoted to aiding governments to prepare over-all programs for agricultural development and to work out plans for specific individual development projects as parts of an integrated program. They should also be assisted in carrying them through. These will include projects under which the debtor countries can export and sell their products to other countries so as to earn the foreign exchange with which to repay their borrowings.

In countries with low levels of production, income, and savings, development programs are needed on a massive scale not only in agriculture but also in manufacturing, transportation, and related industries, if increased production is to overtake and surpass increasing population. In such countries, international financing is needed not only to pay for the imported supplies for development projects but also for consumption goods to help maintain adequate living standards until the new projects can become productive, thus helping prevent inflation in the countries during the process. If, by some means without immediate payment, surplus supplies from agricultural exporting countries could be made available to countries carrying through development programs, this would speed their development. The significance of moving commodity surpluses to underdeveloped countries as a supplement to international investment should be given due consideration in any action dealing with commodity surpluses.

Certain countries have temporarily blocked balances in other currencies. If these funds were freed they might be used for agricultural development. This is only one special aspect of the much larger objective of restoring the free convertibility of currencies throughout the world. While this is a matter beyond the competence of FAO, eventual restoration of convertibility is one of the long-time objectives of general economic policy and is of interest to all primary producers. Progress towards assuring large and continuing flow of international investment funds to the underdeveloped countries will help case the present shortage of hard currencies, while the economic development of those countries and the expansion of their foreign will ultimately help restore a world pattern of trade through which free convertibility of currencies will again become feasible.

Existing national economic development plans require international funds far in excess of those available. Despite this fact, international financial institutions report that they have not received a sufficient number of well-documented and adequately prepared loan applications for specific development projects to utilize their available funds. Special efforts should be made, with the aid of technical assistance from FAO where desired, to formulate specific and well-documented agricultural and related projects, to submit these to financial institutions for consideration, and thus to determine whether or not sufficient international funds can be made available for the needed development.

A number of delegations have emphasized that relatively slight attention has been paid to agriculture in development programs, and that a small proportion of the funds actually committed for investment, both national and international, are for agriculture. In many underdeveloped countries the development or expansion of agricultural resources is one of the most promising and fruitful lines for economic development, as well as for contributing to the general FAO objective of providing adequate food and other agricultural products for the world's population.

In the light of these considerations,

The Conference recommends -

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