With a flurry of activity on the international trade front in recent weeks, the agriculture industry in the U.S. has received a welcome bit of good news.
On Jan. 29, President Donald Trump signed the U.S.-Mexico-Canada Agreement replacing the North American Free Trade Agreement. That came on the heels of Trump’s Jan. 15 signing of a preliminary trade deal with China.
Phase 1 of the U.S.-China trade deal commits Beijing to boosting its imports of U.S. manufacturing, energy and farm goods by $200 billion over the next two years. That includes larger purchases of soybeans and other farm goods expected to reach $40 billion a year, according to the U.S. Department of Agriculture.
“This agreement finally levels the playing field for U.S. agriculture and will be a bonanza for America’s farmers, ranchers, and producers,” U.S. Department of Agriculture Secretary Sonny Perdue said in a Jan. 15 news release.
According to the American Farm Bureau Federation, the U.S. exported $19.5 billion of agricultural products to China in 2017. These exports were reduced to $9.1 billion in 2018 as a result of retaliatory tariffs.
Wisconsin Farm Bureau President Joe Bragger had a front-row seat to Trump’s Jan. 15 signing of Phase 1 of the trade deal with China at the White House.
“Signing this agreement has been a long-awaited moment for many farmers,” Bragger said. “The agriculture community was hit with a double whammy as we battled low commodity prices that were exacerbated by trade issues with China.”
According to the most recent available statistics from the Wisconsin Department of Agriculture, Trade and Consumer Protection’s International Agribusiness Center, Wisconsin exported more than $2.5 billion in agricultural and food products to 146 countries as of the end of the third quarter of 2019, a decrease of 5.5%, or nearly $148 million in value, compared to the same period of 2018.
Food and agriculture exports made up 15.4% of Wisconsin’s overall exports of nearly $16.3 billion through the end of the third quarter of 2019, which were also down 4.8% from the same period of 2018.
The top three export markets — Canada, China and Mexico — make up over 55.2% of total exports and contributed nearly $139 million to the loss compared to the same period in 2018. As of the end of the third quarter of 2019, total exports to China were down to $166 million from $293 million in 2018, according to the Wisconsin International Agribusiness Center.
Phase 1 of the U.S.-China Agreement requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial service, and currency and foreign exchange. The agreement includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years. The agreement also establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement.
The agreement signifies China’s imports of U.S. agricultural products, such as soybeans, grains, meats, ethanol and the full range of other agricultural products will total at least $80 billion during the next two years. China will also strive to purchase an additional $5 billion of agricultural products annually.
“That is big for us, with China being a huge market already,” Bragger said. “There is a huge amount of soybeans exported to China, so you would expect that to react the quickest. But time will tell.”
China has committed to streamline the timelines and procedures for registering U.S. dairy and infant formula facilities and products and to provide regulatory certainty and market stability for products like fluid milk and dairy permeate powder.
Bragger said there are estimates showing as much as half of China’s hog population has been decimated by Asian Swine Fever. That has not only had an impact on the U.S. hog industry, but on the dairy and grain industries as well, because of what those hogs would have been eating.
DATCP interim Secretary Randy Romanski said whey exports to China in 2019 were down 49% from 2019.
“That could have had as much effect on our exports of dairy to China as the tariffs, when you consider the amount of whey powder those hogs were fed,” Bragger said.
Bragger said that during the signing of the trade agreement, Chinese Vice Premier Liu He talked about his country going from a growth economy to a high-quality economy, a progression that could further benefit the dairy industry, particularly in Wisconsin.
“That tells you things are changing and they’ll be looking for high-quality products,” Bragger said. “For dairy, we’ve had a lot of whey powder sales to China. If we can move into high-quality products, that’s what our farmers need. And it positions Wisconsin particularly well because we’re known for cheese and those higher-end things.”
At the Phase 1 signing, Trump said the agreement does not remove tariffs on major U.S. farm exports.
Will Hsu of Hsu Ginseng in Wausau said his industry has been hit particularly hard by the trade war with China. Tariffs on ginseng have climbed from about 8% before the trade war to 48% today.
“These are tariffs that are higher than before China entered the (World Trade Organization), so we’ve basically gone backwards in terms of being able to legally import ginseng into China,” Hsu said. “When you take a 20 year step backwards in 18 months, it doesn’t change overnight because you sign a Phase 1 deal where all the sudden tariffs get lowered to pre-trade war levels.”
Hsu said the number of farmers growing ginseng in Wisconsin has been in decline, dropping from more than 1,000 farmers generating 2.5 million pounds of ginseng to fewer than 200 farmers producing 1 million pounds.
“The price farmers receive has gone down two consecutive price years,” Hsu said. “The customer that’s buying the ginseng in China doesn’t want to pay more, so they’ve asked the farmer here in Wisconsin to reduce the price commensurate with the tariff increase, so the farmer receives less money locally for their crop.
“That’s really been tough on our industry.”
Liu’s comment at the signing that Chinese agriculture purchases would be “based on market conditions,” raised some concerns about the deal.
U.S. Rep. Ron Kind, D-La Crosse, said in a news release his preference would have been for Congress to have input in making sure this agreement was the best deal possible for Wisconsin. Kind said he plans on “reviewing the text of this deal closely and monitoring the results of the trade deal in the coming months to see if this deal holds up.
“While this deal is welcomed relief for our farmers, I’m concerned that this deal is not fully binding like a traditional trade agreement and will lack the transparency and enforceability needed to ensure China will uphold their end of the deal,” Kind said.
The USMCA will create new market access opportunities for United States exports to Canada of dairy, poultry, and eggs, and in exchange the U.S. will provide new access to Canada for some dairy, peanut, and a limited amount of sugar and sugar-containing products. Under the USMCA, Canada agreed to eliminate the Class 6 and 7 milk pricing programs that allowed their farmers to undersell U.S. producers.
“Wisconsin farmers face many challenges and we don’t anticipate this agreement will fix all these hardships, but it is a step in the right direction to help us overcome some of the obstacles we face,” Bragger said.
Canada and Mexico are the first and second largest export markets for United States food and agricultural products, totaling more than $39.7 billion food and agricultural exports in 2018. These exports support more than 325,000 American jobs, according to the USDA.
“USMCA is critical for America’s farmers and ranchers, who will now have even more market access to our neighbors to the north and the south,” Perdue said. “I am excited to see the economic benefits of this agreement increase the prosperity of all Americans, especially those living in rural America.”
Congress signed off on the USMCA late last year. Mexico’s legislature has approved the agreement and Canada’s lawmakers are expected to do so soon, which is necessary for the agreement to take effect.
According to the American Farm Bureau Federation, the USMCA is expected to increase agricultural exports from the U.S. by $2 billion and result in an overall increase of $65 billion in gross domestic product. Canada will increase quotas on U.S. dairy products, benefiting American dairy farmers by $242 million.
Dairy Business Association Vice President Amy Penterman, a dairy farmer from Thorp, was an invited guest at the signing ceremony.
“The relationships our country has developed with Mexico and Canada have greatly benefited the U.S. dairy community during that past 25 years under NAFTA,” Penterman said in a news release. “We need our neighbors and they need us.
“Trade is a key to farmers and processors succeeding in the long term. Farms of all sizes and business models benefit when we have opportunities for free and fair trading. That success extends to all of the other businesses tied to dairy also and keeps our rural communities strong.”