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Corn+Soybean Digest

Economic Rubble

One goal of terrorism is to frighten people. The other is to disrupt the economy, producing a financial aftershock that does damage long after the rubble of a terror strike has been cleaned up.

And this secondary impact has begun to hit the farm economy — boosting the price of farm insurance and tractor fuel, says Ross Korves, senior economist with the American Farm Bureau.

Insurers absorbed multi-billion-dollar losses from the attack on the World Trade Center, and they expect to face big payouts from future terrorist strikes. Insurers pass these costs on to their customers, which has raised the cost of farm vehicle insurance and farm property and casualty coverage, Korves says.

Meanwhile, terrorist strikes against Iraqi oil facilities have cut Iraq's oil output to a trickle, helping to push up the price of oil.

“If we can get Iraqi oil flowing, then the price of fuel might fall,” says Korves. “If we can't get more Iraqi production, then prices stay high.”

But the cost of terrorism to the farm economy could go much higher if it takes a slice out of world trade. And that appears to be one of the goals of the major terrorist organizations.

Increasingly, terrorism has targeted the infrastructure that makes trade possible, says Victor Bohuslavsky, executive director of the Nebraska Soybean Board. He cites strikes on airlines, hotels, embassies, office buildings, housing complexes for Western personnel living in Muslim countries, and, of course, the ultimate symbol of commerce — the World Trade Center.

If terrorism undermines soybean trade, then prices will drop, he says. “Because we produce a large surplus, about 50% of the soybean crop has to be sold through trade,” Bohuslavsky says. “If it doesn't all get consumed, the market will fall and the price will drop.” And farmers will have to pay to store unsold stocks at a cost of 3¢/bu./month, he adds.

U.S. officials are well aware of terrorism's impact on trade. Speaking at a trade conference in Hong Kong, Kenneth Juster, U.S. Undersecretary of Commerce, said the international community must combat terrorism to maintain open markets. “Our future prosperity,” he declared, “will be tied directly to the success of our cooperative efforts to eliminate the global instability caused by terrorism.”

Kim Nill, technical issues director of the American Soybean Association, says terrorists try to keep Arab businesses from dealing with the West, but he doubts the effort will succeed. “With our commodity, it's hard to impact it. You can't get at soybean trade by occasionally blowing up a foreign bank.”

However, terrorism can dampen trade temporarily, he says. For instance, soybean exports to the Middle East fell after the U.S. invasion of Iraq, then began to grow again, Nill adds.

But some economists say terrorism could have a long-term impact on agricultural trade.

“Are we at the point where terrorism is going to roll back the world economic integration of the last 20 years? I think the answer for now is no,” says Korves. “Could it happen? The answer to that is yes.”

Says Otto Doering, an ag economist at Purdue University, “If you look historically at world trade, when there is great unrest, trade contracts. When there are long periods of peace, trade expands. Globalization depends on strong civil and legal institutions and it depends on trust. Insofar as terrorism can disrupt those things, it will affect trade.”

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