One of the murkiest areas of economics is the concept of currency fluctuations. Television news anchors refer to it in passing as they try to explain economic upheavals.
But what does it mean for agriculture, and is there anything that can be done about it?
For American corn and soybean farmers, currency fluctuations often mean lost export sales. But trade consultant Luther Tweeten, a retired ag economist at Ohio State University, thinks he has a solution — a North American Free Trade Agreement (NAFTA) dollar that's patterned after Europe's currency, the euro.
The euro is the trading currency of the European Union (EU), a group of nations trying to improve their economies by easing trade barriers. The euro has replaced most currencies in the EU, eliminating national currencies such as the French franc. That means the euro has the same spending power in Paris or Berlin, just as the dollar is worth the same in Boston or Seattle.
Right now, the dollar fluctuates in value against other currencies, and that's the heart of the problem. For instance, the American dollar is worth more than the Canadian dollar. That makes farm exports from Canada to the U.S. cheaper, but makes American farm exports to Canada more expensive.
“Canadians have to pay a lot of their dollars for our soybeans,” says Tweeten. “So they don't buy as much, or they may buy from Brazil or some other soybean-producing country that has a more favorable exchange rate.
“In general, the American dollar has been rising in value against other currencies for some years,” Tweeten says. “That makes it difficult for American farmers to compete in international markets.” (Of course, American consumers like the strong dollar. It makes imports such as televisions from Japan cheaper.)
Tweeten's solution is a universal currency for the U.S., Mexico and Canada. He proposes to call it the NAFTA dollar. A NAFTA dollar would have the same spending power in New York, Toronto or Mexico City, and it would help level the North American playing field.
“There's a great deal of exchange rate risk between the NAFTA countries,” Tweeten says. “We saw the collapse of the peso in 1994-95. We've seen the Canadian dollar go up and down.
“Currency fluctuations cause all kinds of problems in agriculture. If you remember the early 1980s, the high value of the dollar was as responsible as anything for the financial stress experienced by farmers.
“It also makes it very difficult for farmers to plan for the future because you don't know what the exchange rate will be,” he adds. “There are ways to hedge exchange rate risks, but it's full of pitfalls and it's generally not for the uninitiated.”
Currently, Tweeten's suggestion is just a proposal. But the experience in Europe — where once bitter enemies agreed on a common currency — suggest anything is possible. “If the French and the Germans could get together,” says Tweeten, “then surely the Canadians and Americans could get together.”