ECONOMIC

prices of approximately the same order of magnitude as a revaluation [ofthe Australian dollar] of slightly less than 6 percent." While this was certainlythe most dramatic example of the new economic incentives prevailingin 1973, similar evidence was provided by the actions of many othercountries.In the United States large increases in the prices of foodstuff's became aparticularly important public issue, and efforts to contain these prices becamea prominent objective of domestic economic policy, as explained elsewherein this report. This overall policy led to a review of the quotas onimported food products, which have long been part of U.S. agriculturalprograms designed to protect farm income at home. Since the problem in1973 was soaring farm prices rather than falling farm income, the Administrationdecided to enlarge or suspend many of these quotas while suppliesremained scarce. Quotas on meat imports were suspended for 1973; quotas oncheese, butter, and nonfat dry milk were all increased temporarily.Many other countries took similar actions. Japan, for instance, reducedtariffs on about 5 percent of her import categories and expanded or eliminatedsome of the remaining quotas on imports of manufactured and agriculturalproducts. Canada lowered tariffs on certain consumer goods and agriculturalproducts. The European Community reduced, and in some casessuspended, tariffs on various industrial products, primarily chemicals. Inaddition, the variable levies which the EC imposes on food imports as partof its Common Agricultural Policy automatically fell to zero, as world pricesexceeded the support price level in the Community.What Countries Did to Reduce ExportsWith the booming worldwide demand for foodstuffs and raw materials,prices of such commodities rose to record heights. This increase in domesticprices as a result of foreign demand pressure caused considerable resentmentin many producing countries and led to public demands that domestic suppliesbe protected. The situation was further aggravated when some governmentsimposed price controls in an effort to contain the inflationary pressures.Since export prices remained uncontrolled, domestic producers had an increasedincentive to export their goods, with the result that the domesticshortages created by the initial imposition of the price controls were aggravatedby increased exports. To alleviate the domestic shortages, a numberof governments imposed controls on exports.The pressures of foreign demand for agricultural goods in 1973 had aparticularly strong impact in the United States. In most of the other majorcountries exporting agricultural products, the government acts as the middlemanbetween the domestic producer and the foreign buyer, and it can thusregulate the level of sales. In contrast, the United States has traditionally permittedforeign buyers to purchase freely in the U.S. market. Partly for thisreason, and partly because the United States had the largest stocks, foreignbuyers converged on the U.S. market, increasing U.S. agricultural exports by210